What is the lifetime allowance?

The lifetime allowance is the maximum amount of pension scheme funds that can be or deemed to be, 'crystallised' (usually to provide benefits), in relation to all of a pension scheme Member's registered pension schemes, without incurring a penalty tax charge.


The standard lifetime allowance for tax year 2020/21 is £1.0731 million.  For tax year 2019/20, it was £1.055 million; for 2018/19, it was £1.03 million and for 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 their remaining lifetime allowance there should be no tax penalty.

However, when benefits are put into payment and the total value of the fund used to provide the benefits exceeds the individual's remaining LTA, 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 protection was introduced to prevent individuals with previously accumulated pension savings under existing regimes being disadvantaged should their funds exceed subsequent reductions in the standard lifetime allowance.

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

There are currently only two types of lifetime allowance protection which individuals can still apply for:

Protection Am I eligible and what does it do? Can I keep building up my pension?
Other types of protection you can hold at any time
 
Other types of protection you cannot hold at the same time
Individual protection 2016 Available provided your pension savings were worth more than £1 million at 5 April 2016. 

Protects your lifetime allowance to the lower of:
- the value of your pension savings at 5 April 2016
- £1.25 million
Yes, but when you put benefits into payment and their value exceeds your protected lifetime allowance, the excess will be subject to a tax charge. 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 had 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 excess above the standard lifeitme allowance when you put benefits into payment.
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.

​You must apply online to HMRC for fixed protection 2016 or individual protection 2016. Protection can be applied for online to HMRC.

Please note:

  • If protection is lost, or if pension savings put into payment exceed any protected level of lifetime allowance, a lifetime allowance charge may apply. Protection may also be affected by auto-enrolment.
  • The lifetime allowance charge for benefits put into payment in excess of the lifetime allowance is 55% if paid as a lump sum, or 25% if paid as pension 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 lifetime allowance purposes where the individual also has benefits that come into payment after 5 April 2006.
  • If the standard lifetime allowance increases beyond an individual's protected lifetime allowance, the standard lifetime allowance will then replace the lower protected lifetime allowance.


 

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