Lifetime Allowance Charge: Don’t get caught out

What is the Lifetime Allowance?

Introduced in 2006 the Lifetime Allowance was originally set at £1.5million, it then increased over the following years to a maximum of £1.8million in 2010. Since then the allowance has reduced with the latest reduction in April from £1.25million to £1million being the third in four years. It is estimated that this latest reduction will double the number of people being caught by the tax charge, as they have benefits over £1million.

The Lifetime Allowance applies to everyone, not just higher earners or those in a particular type of pension scheme. All pension benefits, whether defined contribution (also known as money purchase, such as personal pensions and many occupational pensions) or defined benefit (final salary) are included in the calculations.

Are you affected?

The test against the Lifetime Allowance occurs on a number of specified events, most frequently when pension benefits are drawn but can also apply