What is the Lifetime Allowance?
The standard Lifetime Allowance is the effective maximum for an individual’s total pension arrangements in their lifetime, without triggering certain tax charges.
Pensions are tested against the Lifetime Allowance at various points, with the most obvious being when benefits are provided, either in the form of entering drawdown, purchasing an annuity or receiving a scheme pension. It is also applied on other events, including reaching age 75 with a drawdown arrangement.
If you are looking for expert advice on managing your Lifetime Allowance contact our pension’s specialists today. Our team in Leicester can discuss your pension arrangement and help with any queries you may have regarding your Lifetime Allowance.
The Lifetime Allowance is currently £1m and is to start increasing annually by the Consumer Prices Index (CPI) from the 2018-19 Tax Year.
What was the Lifetime Allowance previously?
The Lifetime Allowance was introduced in 2006, but the value of it has changed a great deal over the years, as shown in the following table:-
| Tax Year | Annual Allowance |
|---|---|
| 2006/07 | £1,500,000 |
| 2007/08 | £1,600,000 |
| 2008/09 | £1,650,000 |
| 2009/10 | £1,750,000 |
| 2010/11 | £1,800,000 |
| 2011/12 | £1,800,000 |
| 2012/13 | £1,500,000 |
| 2013/14 | £1,500,000 |
| 2014/15 | £1,250,000 |
| 2015/16 | £1,250,000 |
| 2016/17 | £1,000,000 |
Protection against the Lifetime Allowance
There has been a range of protections provided against changes to the Lifetime Allowance. Initially Enhanced and Primary Protection were available to protect those with pension savings prior to 2006, with further protections having been available since 2006, in the form of Fixed Protections 2012, 2014 and 2016, and Individual Protections 2014 and 2016.
The tax changes
For those without protection, or where protection is breached, there are tax charges payable on the commencement of benefits where pension savings are in excess of the standard lifetime allowance.
If this excess is paid as a lump sum then the tax charge is 55% of the excess, if paid as a pension then the tax charge is 25% of the excess.
Defined Benefits Schemes
Please note, the calculation of the Lifetime Allowance when taking benefits from a defined benefit scheme is treated in a very different manner from money purchase schemes and is not addressed in this article. If you have a query on the Lifetime Allowance within your final salary pension arrangement, then please contact the Scheme Administrator, or speak to Boolers.
How you protect your pension savings depends on the type of protection obtained. Further guidance on the more recent forms of protection cab be found in our technical guides.
For Lifetime Allowance advice and management in Leicester, contact our team today for bespoke pension advice.
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