When an individual's benefits come into payment (a benefit crystallisation event) they will be tested against a ceiling known as the lifetime allowance.
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.
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:
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.
Whatever your retirement needs, one of our experts will be happy to discuss how we can help you achieve your goals.