imperial Chartered Retirement Planning

Lifetime Allowance

The lifetime allowance refers to the maximum allowance of tax-free pension funds someone can build up throughout their lifetime. After you have reached the limit, a lifetime allowance tax charge is applied. Without protection, the current lifetime allowance is £1,055,000 (2019-2020) and increases each year in line with inflation.


Does the Lifetime Allowance apply to you?

Each time a payout from your pension scheme starts, the value is compared against your remaining lifetime allowance to calculate if there is additional tax to pay. You can work out whether you could be affected by adding up the expected value of your payouts. This is worked out differently depending on the type of pension scheme you are in:

  • Defined contribution pension schemes – The total value of your benefits will be the value of your pension pot used to fund your retirement income, including any lump sum.
  • Defined benefit pension schemes – To calculate to the total value you will need to multiply your expected annual pension by 20. You will also need to add the amount of tax-free cash lump sum (if it is an addition). In 2019 you are likely to be affected by the lifetime allowance if you are on track for a final salary pension of more than £52,750 per year.
  • As soon as you start taking money from your pension, you will receive a statement from your provider telling you how much of your lifetime allowance you are using up.
  • When you reach 75, a check will be made against any unused funds or undrawn entitlements.


Lifetime Allowance Charges

If the total value of the payouts from your pension exceeds the lifetime allowance, there will be a tax on the excess. How you receive money from your pension, either through a lump sum or part of a regular payment will dictate how the charge is applied.

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*Please Note

“The value of your investments can go down as well as up, so you could get back less than invested”, “A pension is a long term investment. The fund value may fluctuate and can go down” and “Your eventual income may depend on the size of fund when accessed, interest rates and legislation”.

“The Financial Conduct Authority do not regulate tax planning advice”.

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