Lifetime allowance

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There is a limit to the total overall value of your pension benefits that you can build up over your lifetime. This is called the lifetime allowance and exceeding it will trigger an additional tax charge.

Here are five key things to know about it:

  1. The lifetime allowance applies to all your pension plans, past and present, but it doesn’t include the State Pension.
  2. The lifetime allowance is determined each year by the government, and for the 2020/21 tax year it’s £1,073,000.
  3. When you decide how you would like to take your pension benefits from the Plan, you will be asked to complete a lifetime allowance form and provide details of your other pensions outside of the Plan.
  4. The Plan administrator, Mercer, will test the value of your pension benefits in the Plan (which is your pension payable x20, plus any lump sum) against your available lifetime allowance and determine whether your pension benefits will be liable for a tax charge, called the lifetime allowance charge, which will be deducted before your benefits are paid.
  5. Any benefits over the lifetime allowance that you take as an annual pension will be taxed at 25%, in addition to any standard income tax you pay on your pension. Any benefits you take as cash that are over the lifetime allowance will be taxed at 55%. You may have previously taken out an lifetime allowance protection to reduce any potential lifetime allowance charge.