Pension Practitioner
The SSAS Experts

Changes to Lifetime Allowance scheme that will affect your pension

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What is it?

Lifetime Allowance is a limit on the amount of pension benefit that can be drawn from your pension scheme without incurring an extra tax charge. Currently the Lifetime Allowance scheme stands at £1.25m following pension reforms from 2010 onward.

In April 2016 this limit will be reduced to £1m. Any amount over your lifetime allowance that you take as a lump sum is taxed at 55%. Any amount over your lifetime allowance that you take as a regular retirement income – for instance by buying an annuity – attracts a lifetime allowance charge of 25%. This is on top of any tax payable on the income in the usual way.



How will it affect me?

If you’re the value pension is approaching or exceeds the lifetime allowance, you must take action or could face unpleasant taxes.

Even if you are not sure that this applies to your situation, it could affect you. Pensions are a long term commitment, and even if your pension fund seems modest now, by the time you come to draw out the benefits it could stand to be a much larger sum, exceeding the lifetime allowance.


What can I do about it?

Transitional protections have been introduced, in the form of Fixed Protection 2016 (FP2016) and Individual Protection 2016 (IP2016). We have included the details of these below. HMRC confirmed in Newsletter 73 that you can apply for FP2016 AND IP2016 through an online self-service portal. This will then provide a protection reference number which you can use in order to take benefits using a protected Lifetime Allowance.

Fixed protection 2016

FP2016 is available for those that do not already have a previous version of fixed, enhanced or primary protection and do not contribute into or accrue benefits after 5th April 2016. The lifetime allowance will be £1.25 Million.

Individual protection 2016

IP2016 is available for those that have pensions valued in excess of £1 Million as at the 5th April 2016. Unlike FP2016, holders of IP2016 will be able to carry on contributing and accruing benefits.

It’s important to be proactive where your pension is concerned, and make prudent decisions with your pension provider’s advice. If you have any questions about the specifics of your pension, please get in touch to find out the best advice for your situation!

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Contact for guidance and reassurance concerning your pension scheme.



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