Lifetime Allowance

On 6th April 2006 the Government introduced wide ranging changes in Pensions legislation that were supposed to make pensions "simpler". They created a single universal regime to cover all of the different types of pension arrangement. This replaced eight different tax regimes and the changes have affected savers in occupational and personal pension schemes.

Pensions "Simplification" introduced two new controls, the pension lifetime allowance and pension annual allowance replacing all eight of the previous tax regimes with their numerous controls.

The other main changes were to allow all schemes to offer 25% tax free cash on the total value of the pension fund, to allow employees the opportunity to continue working for their employer while taking benefits from their occupational pension scheme, pensions schemes were allowed to invest in many types of investments and the complex approval process for pension schemes were replaced with a simplified registration procedure.

The Lifetime Allowance is the maximum amount of pension savings that can benefit from tax relief was initially set at £1.5 million. The figure was expected to rise over time and it did so in the early years but the current "Coalition" Government has announced that the Lifetime Allowance will fall back to £1.5 million in tax year 2012/2013 as follows :

  • 2007 - £1.6 million
  • 2008 - £1.65 million
  • 2009 - £1.75 million
  • 2010 - £1.80 million
  • 2011 - £1.80 million
  • 2012 - £1.80 million
  • 2013 - £1.50 million
  • 2014 - £1.25 million

There is a lifetime allowance charge of 25% on pension funds that exceed the Lifetime Allowance. Funds that exceed the Lifetime Allowance can be taken as a lump sum and in this case the Lifetime Allowance charge will be 55%.

If you need advice with regards to your pension benefits and how they are affected by the Lifetime Allowance , it is very important you seek advice as soon as possible.