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Could the lifetime allowance dent your pension income?

While the government is generally supportive of pension savings, there are limits to its generosity. If the value of your pensions is close to £1,055,000, or likely to reach this by the time you retire, then you need to know about the lifetime allowance (LTA).

Important information - please remember that the value of investments and the income from them can go down as well as up, so you may not get back what you invest.

Your pension lifetime allowance

The lifetime allowance currently caps the total amount you can build up in pension benefits over your lifetime with full tax benefits applying, at £1,055,000. While the idea of a £1,055,000 pension pot may sound fanciful, it’s easier to rub up against this lifetime allowance than you might think. If the value of your pension pot rises above this limit, you can continue to pay into your pension, but will generally face tax charges on the excess when you withdraw the money, transfer overseas or reach age 75 with unused pension benefits.

These tax charges can be high. 55% when the excess is withdrawn as a lump sum and 25% plus your marginal rate of income tax if taken as income. This is a lot to lose and there are usually better options.

As a result, diligent pension savers need to keep an eye on the value of their pensions. Fidelity’s Senior Adviser, Charlie, shares four key questions to ask yourself when reviewing the value of your pensions. 

1. Am I near the lifetime allowance limit today?

It isn’t always easy to work out if you will exceed the lifetime allowance limit. You may have multiple pensions, of different types, each with a different calculation method. The lifetime allowance is aggregated across all your pensions, so you need to include all of them in your calculations. This includes, both company and private pensions, such as SIPPs and final salary pensions. It doesn’t include the value of your state pension though. 

For more information on the calculations needed for company and private pensions, including pensions that are already paying read our guide

2. Could new contributions and investment growth push me over the limit?

Investment growth and additional contributions can push you over the limit, over time. So, it’s important to factor this in to your calculations. 

3. Am I confident in my calculations and that I have everything covered?

Make sure you’ve incorporated all your pension scheme providers, including your employer. It’s up to you - neither the tax authorities, nor your pension providers, are checking the value of your pensions against the lifetime allowance on a daily basis. It is only once you start withdrawing money from your pension fund that HMRC tests it against the lifetime allowance (it’s also tested on your 75th birthday if you still have money in a pension, whether you’re taking any benefits or not). Don’t expect a warning letter; it’s your responsibility to check.

If there is anything you are unsure about we’d encourage you to speak to a retirement adviser or seek specialist tax advice. 

4. What can I do if I think my pension will exceed the lifetime allowance?

If you’re getting close to the pension lifetime allowance, there are things you can do to safeguard your money. Each time the government has reduced the lifetime allowance, it has set up various ‘protection schemes’ so you may be able to apply for protection, which could give you a higher lifetime allowance (there are restrictions as well). If you are unable to obtain protection, then it is worth noting the current lifetime allowance is due to increase each year in line with consumer price inflation (CPI).

You can read more about the how the protection schemes work and how to apply for them in our lifetime allowance guide. Remember, it’s your responsibility to check the value of your pensions and to apply for the relevant protection scheme. 

Get support with your plans

The lifetime allowance is a complex pension area and if you think your pensions may exceed the limit it’s a good idea to speak to a retirement adviser, of your choice.

Retirement advice can help you make informed decisions at retirement. So, if you think you might be impacted by the lifetime allowance or would benefit from pension investment or retirement advice, Fidelity’s retirement service can help.  You can call them on 0800 860 0048 for a no obligation discussion about the level of support you need. They’re open 9am to 5pm, Monday to Friday. 

PensionWise - The Government offers a free and impartial guidance service to help you understand your options at retirement. This is available via the web, telephone or face-to-face through government approved organisations, such as The Pensions Advisory Service and the Citizens Advice Bureau. You can find out more by going to or by calling Pension Wise on 0800 138 3944.


Important information - tax treatment depends on individual circumstances, and all tax rules may change in the future.  Withdrawals from a pension product will not normally be possible until you reach age 55. Pension and retirement planning can be complex, so if you are unsure about the suitability of a pension investment, retirement service or any action you need to take, please contact Fidelity’s Retirement Service on 0800 860 0048 or refer to an authorised financial adviser.


£500 towards retirement advice

Investing in advice can help you make the most of your hard-earned pension savings. For a limited time, we’re offering £500 off the cost of retirement advice. Just call us before 31 January 2020 and quote FRS3101 when calling. Exclusions and T&Cs apply.

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