Lifetime allowance.

When an individual's benefits come into payment they will be tested against a ceiling known as the Lifetime allowance (LTA).

The standard Lifetime allowance for the tax year 2018/19 is £1.03 million. For the tax year 2017/18, it was £1 million.

Provided the value of all an individual's benefits from all Registered Pension Schemes which are put into payment do not exceed the Lifetime allowance there should be no additional tax charge.

However, when benefits are put into payment, if the total value of the fund used to provide the benefits exceeds the individual's Lifetime allowance, there will be a tax charge on the excess of 25%, or 55% if the excess is taken as a lump sum.

Types of lifetime allowance protection

LIfetime allowance (LTA) protection was introduced to prevent individuals with previously accumulated pension savings under existing regimes being disadvantaged should their funds exceed subsequent reductions in the LTA.

This has led to a number of different LTA protections since 2006:

There are currently only two types of Lifetime Allowance Protection which can still be applied for:

Protection Am I eligible and what does it do? Can I keep building up my pension(s)? Other types of protection you can
hold at the same time
Other types of protection you cannot hold at the same time

Individual protection 2016

Available provided your pension savings were worth more than £1m at 5 April 2016.
Protects your Lifetime Allowance to the lower of:

- the value of your pension(s) at 5 April 2016
- £1.25million

Yes, but you must pay tax on money taken from your pension(s) that exceeds your protected Lifetime Allowance

Enhanced protection

Fixed protection 2012


Fixed protection 2014

Fixed protection 2016

Primary protection

Individual protection 2014

Fixed protection 2016

Available provided you or your employer haven't added to any of your pension schemes since 5 April 2016 and have opted out of any workplace pension scheme by 5 April 2016.

Fixes your Lifetime allowance at £1.25 million

No, except in limited circumstances.  If you do, you will:

- lose your Fixed protection 2016
- pay tax on any pension(s) above the standard Lifetime Allowance when you take your pension

Individual protection 2014

Individual protection 2016

Enhanced protection

Primary protection

Fixed
protection 2012


Fixed protection 2014

 

Individual protection 2016 will remain dormant until you lose or give up one of your previous protections.

Individual protecton 2014 will override Fixed protection 2016 but any contributions paid after 6 April 2016 will result in your Fixed protection 2016 being lost.

Protection can be applied for online to HMRC.


Please note:

  • If protection is lost, and/or if accumulated pension savings exceed any protected level of LTA, a LTA charge may apply. Protection may also be affected by auto-enrolment.
  • The LTA charge for benefits paid out in excess of the LTA is 55% if paid as a lump sum, or 25% if paid as an income, which itself is then subject to tax under usual PAYE rules.
  • The value of an individual’s benefits that came into payment before 6 April 2006 is only taken into account for LTA purposes where the individual also has benefits that come into payment after 5 April 2006.
  • If the standard LTA increases beyond an individual's protected LTA, the standard LTA will then replace the lower protected LTA.