Know your limits - pension lifetime allowance
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Know your limits - pension lifetime allowance
Anyone with pension savings of more than £1.5 million when they come to take their benefits could be in danger of paying more tax. This equates to pension income of around £75,000 a year from all sources (not including State Pensions).
The ‘lifetime allowance’ is the amount of pension savings you can have without paying tax on it. From 6 April 2012, the lifetime allowance will reduce from £1.8 million to £1.5 million, so more people will be affected by it.
However, help is at hand. You can apply to HMRC for ‘fixed protection’ to reduce or eliminate liability to the lifetime allowance tax charge. Having fixed protection means you will have a protected lifetime allowance of £1.8 million and is an opportunity to protect an extra £300,000 of your pension savings from a penal tax rate. You can still protect pots currently worth less than £1.5 million by applying for fixed protection.
If you want to rely on fixed protection, there are restrictions on what you can do with your pension savings. For example, after 5 April 2012 you must stop building up benefits in every registered pension scheme that you belong to. This means that you will need to opt-out of the company scheme. The company will pay you a pension allowance in exchange for you not earning any more benefits after this date.
It is your responsibility to monitor your pension savings against the lifetime allowance.
Contact us for more information if you think you might be affected. We can't give you specific advice about what can be a complex situation, so you may need to get financial advice depending on your own individual circumstances.
Source: Time For Money