Your pension lifetime allowance

If the value of your pensions is close to £1,030,000, or are likely to reach this by the time you retire, then you need to know about the lifetime allowance (LTA). The LTA is set by the government and limits the total amount you can build up in pension benefits over your lifetime while still enjoying the full tax benefits. If you go over the allowance you will generally pay a tax charge on the excess when you take a lump sum or income from your pension pot, transfer overseas or reach age 75 with unused pension benefits. Any excess may be subject to tax charges of:

  • 25% of any income
  • 55% of any lump sum

This limit applies to the value of all your pension arrangements. This includes:

  • final salary (defined benefit) schemes
  • personal pensions (also known as defined contribution pensions)
  • any pension that has paid you a lump sum or income

How the lifetime allowance works

You could be taxed if, when your pension is tested, it exceeds the lifetime allowance. It’s important to understand exactly how and when the test is applied, and what is included.

Lifetime allowance guide

Lifetime allowance guide

Find out more about how the lifetime allowance will affect you.

Protecting against the lifetime allowance charges

If you’re getting close to the pension lifetime allowance, there are things you can do to safeguard your money. These are known as ‘protection’ and they effectively give you your own lifetime allowance, but there are restrictions as well.

  • Fixed protection 2016 provides you with a lifetime allowance of £1.25m. However you can’t apply for this protection if you made any contributions after the 5th April 2016.
  • Individual protection 2016 gives you a personalised lifetime allowance that is equal to the value your pensions were on the 5th April 2016. To be eligible your pensions will need to have been worth £1m or more. Your protection amount is capped at £1.25m. You can still make contributions to your pension, but you are likely to face tax charges.

What to do next

The value of investments can go down as well as up so you may get back less than you invest. The value of tax savings and eligibility to invest in an ISA depend on personal circumstances. All tax rules may change in future. Pension money cannot usually be withdrawn until age 55.

Need advice?

Talk to someone about your options in more detail

We can help

Close to retirement but unsure about the options and pitfalls ahead? We can offer guidance and advice to help you find the best solution for your retirement.

Call us on 0800 368 6882, Monday to Friday, 9am - 5pm.

Pension Wise

The government’s Pension Wise service offers free, impartial guidance to help you understand your options at retirement. You can access the guidance online or over the telephone on 0800 138 3944.

Related articles

This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to an authorised financial adviser.