lifetime allowance by AndyBy Andy Pardoe, Compliance Officer at Anstee & Co. 

The lifetime allowance is the overall limit of pension funds a member can build up during their lifetime before a tax charge applies. If you should go over this limit, you will pay a tax charge on the excess whenever you take income, withdraw a lump sum or reach the age of 75 without having taken any benefits.

The lifetime allowance was first introduced in April 2006 with a limit of £1,500,000. The limit gradually increased to its peak of £1,800,000 in 2011/2012, however, since then it has reduced significantly and currently stands at £1,055,000 for 2019/2020 tax year.

The amount of tax you pay by exceeding the LTA threshold depends on how you withdraw money from your pensions. If you access your pension as a lump sum you will pay tax at 55% on any amount over the LTA limit. However, if you take the pension as income you will pay tax at 25% on any excess. This will be on top of any income tax paid.

When will a lifetime allowance apply?

The lifetime allowance applies to the value of all your pensions, apart from the State Pension. It includes both defined benefit (final salary) pensions and defined contribution (money purchase) pensions. The value of these 2 types of pensions are calculated differently to assess whether you are likely to breach the LTA limit. For defined contribution pensions it is the value of the various pension pots you may hold. For defined benefit pensions it is usually 20 times the pension you receive in the first year plus your lump sum.

With careful planning, there are several ways you can avoid breaching the lifetime allowance and avoid paying the extra tax charges.

How Anstee & Co can help you with retirement planning.

We are a firm of Independent Financial Advisers (IFA’s). This means that the financial advice we offer is unbiased. We look at all the financial solutions from the “whole of market”.

If you would like help with your retirement planning why not arrange a meeting. The initial factfinding meeting is out our cost and without obligation. Meetings can be arranged at your home or one of our offices located at-lifetime allowance call back logo

  • Kettering, Northamptonshire
  • Stamford, Lincolnshire
  • London, Pall Mall, Greater London

Additionally, our team of Financial Advisers live and make use of meeting rooms in-

  • Bedford, Bedfordshire
  • Market Harborough, Leicestershire
  • Northampton, Brackley, Wellingborough and Towcester in Northamptonshire.

Finally, remember we are here to help you design your financial future.