Your pension lifetime allowance

The lifetime allowance 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

However, it does not include your State pension.

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 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.

Remember that 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 Pension money cannot usually be withdrawn until age 55.

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.