What is the Lifetime Allowance?
The Lifetime Allowance is the maximum amount you can save into a pension without incurring a tax charge. It’s generally tested when you take benefits, reach age 75, or on death. The consequence of exceeding the allowance is a 55% tax charge. There is a bit more detail to it, but these are the key points.
Whilst the Lifetime Allowance has started to rise again with inflation, it remains significantly lower than its height of £1.8 million in 2011/12. It currently stands at just £1.055 million. This might sound like a lot of money, but those with final salary pensions (including doctors) are finding this to be a problem.
One of the tools for obtaining a higher than normal lifetime allowance will be significantly harder to use from 6 April 2020.
Individual Protection 2016 (IP2016) – a personalised lifetime allowance
This is available to those who had pension savings over £1m on 5 April 2016. The personalised allowance would be the lower of the value of existing pension savings and £1.25m. If/when the standard lifetime allowance exceeds this figure you get the higher allowance.
The advantage of IP2016 over Fixed Protection 2016 (which gives an allowance of £1.25 million) is that you can continue to fund your pension. Fixed Protection 2016 is lost if you or your employer makes contributions to pensions for you. So, IP2016 might be worth considering if your employer is not willing to provide alternative remuneration to pension contributions.
What do you need to know?
The government has tried to make the process fairly straightforward but you do need to work out four numbers:
- Pensions already in payment before 6 April 2006.
- Pensions which used LTA between 6 April 2006 and 5 April 2016.
- Pensions not yet taken.
- Contributions (which gained UK tax relief) put into overseas pensions between 6 April 2006 and 5 April 2016.
At the moment, picking up these numbers can be as simple as writing to your provider. They are required to provide the information within three months.
There is no deadline for you to apply, but the regulations only say that pension schemes must provide this assistance if you ask, in writing, before 6 April 2020.
What should you do if you think this might be a problem?
Just like any other situation the first step is to find out what the problem is. Write to your providers well ahead of the deadline requesting the information.
Our team of chartered financial planners can help you understand what you receive and take stock of your position. By looking at your pensions in the light of your objectives and other wealth, we can help build a plan of what you should do.
Contact our team