Pension Lifetime Allowance

Check if your pension savings exceed the pension lifetime allowance

The pension lifetime allowance applies to any pension savings you have in:

  • a registered pension scheme
  • an overseas pension scheme that qualifies for UK tax relief for either you or your employer on or after 5 April 2006

The pension lifetime allowance is currently £1.25 million Previously it was £1.5 million.

The lifetime allowance applies even if you’re in a pension scheme that you don’t make payments into – for example if you’re in a workplace pension that only your employer makes payments into.

If you’re in a defined benefit scheme and you take your pension after 6 April 2014

Your pension benefits will be tested against the lifetime allowance of £1.25 million. This level of pension saving is broadly equivalent to an annual pension of:

  • £62,500 if you don’t take a lump sum
  • £46,875 if you take the 25% maximum tax free lump sum

If you’re in a money purchase scheme

For a money purchase scheme it‘s the value of your pension pot that is used to pay your pension benefits, (such as an annuity and a tax free lump sum) that is tested against the lifetime allowance at the time you take your benefits.

When your pension savings are tested against the lifetime allowance

Pension savings are tested against the lifetime allowance when you take your pension benefits and on certain other key events. Your scheme administrator will value your pension savings and check if they’re worth more than the lifetime allowance.

Other events triggering a pension lifetime allowance test include:

  • when you reach age 75 in certain circumstances
  • if you transfer your pension pot to a qualifying recognised overseas pension scheme (QROPS)
  • if a pension you’re getting increases beyond a certain limit – more in the link below
  • on the payment of certain lump sums – such as serious ill health lump sums, some types of death benefit lump sums

Find out more about these events by following the link to technical guidance below.

Rates of lifetime allowance tax charge

The charge is paid on any excess over the lifetime allowance limit. The rate depends on how this excess is paid to you. If the amount over the lifetime allowance is paid as a:

  • lump sum – the rate is 55%
  • pension – the rate is 25%