A couple of years ago I wrote about the Pension Lifetime Allowance but as it’s something that we tend to advise on quite a lot at this time of the year, I thought it would be a good time to refresh readers’ memories.
The Lifetime Allowance was introduced on the 6th April 2006, and originally was set at £1,500,000. Over the first few years this amount increased and peaked at £1,800,000. It then decreased to £1,000,000 in 2016/2017. Since then there have been a few increases, but it has now been fixed at £1,073,100 until 2025/26.
When this was first introduced I remember thinking, as an adviser, that it was unlikely to affect many individuals, but following its reductions more and more individuals are affected.
The Lifetime Allowance is the maximum you can build up within a Pension while still enjoying full tax benefits. Pension benefits are tested against this allowance at “benefit crystallisation events” which generally arise when Pension benefits are taken. Any benefits in excess of this Allowance are subject to a Lifetime Allowance tax charge.
It is possible for individuals to have a higher Lifetime Allowance, for example by having a form of protection, and you can still apply for this.
The first question you should ask yourself is, are you near or over the current Lifetime Allowance? If you are, we would recommend that you seek advice. Paying tax is not necessarily a bad thing but there may be things you can do to help your position. You should not just stop paying into a Pension because you are near to this allowance, as there can be additional benefits to keeping the Pension, for example if your employer is paying into it. So, if this or any other area is concerning you why not pick up the phone today and book a free, without-obligation consultation.
The content included on this page is based on our understanding of the UK tax law at the time of publication. It may be subject to change and may not be applicable.
