The lifetime allowance is a limit on the value of payouts from your pension schemes – whether lump sums or retirement income – that can be made without triggering an extra tax charge.
Any amount over your lifetime allowance that you take as a lump sum is taxed at 55%.
Any amount over your lifetime allowance that you take as a regular retirement income – for instance taking a scheme pension – attracts a lifetime allowance charge of 25%. This is on top of any tax payable on the income in the usual way.
With the lifetime allowance due to fall from £1.25 million to £1 million on 6th April 2016, the Government announced last year that two new forms of transitional protection for savers who were affected would be made available.
Fixed Protection 2016
- There is no minimum fund value that is required to register
- This gives those who do, an automatic cap of £1.25 million
- No further relevant benefit accrual must occur after midnight on 5th April 2016
Individual Protection 2016
- Pension funds/scheme pensions must be valued as at least £1 million as at midnight on 5th April 2016
- A personalised cap will then be given based on that value, up to a maximum of £1.25 million
- Further benefit accrual is permitted
To know more, or if you think the changes may impact you, get in touch.