The Pension Lifetime Allowance (LTA) is the maximum amount of pension saving you can have without having to pay an additional tax charge.  The LTA applies to all your pension arrangements, excluding the State Pension.  The Lifetime Allowance for the 2015/2016 tax year is £1.25 million and this will reduce to £1 million from April 2016.  It is also proposed to index the LTA in line with the Consumer Prices Index (CPI) from 2018.

The Lifetime Allowance was introduced on 6 April 2006 when it was set at £1.5 million. The table below shows the  changes between 2006 and 2015.

Tax YearLifetime Allowance
2006/2007£1.5 million
2007/2008£1.6 million
2008/2009£1.65 million
2009/2010£1.75 million
2010/2011£1.8 million
2011/2012£1.8 million
2012/2013£1.5 million
2013/2014£1.5 million
2014/2015£1.25 million

If your overall pension savings exceed the Lifetime Allowance you will pay additional tax as follows:

  • 55% tax charge if benefits taken as a lump sum.
  • 25% tax charge if taken as income payments.

In previous years when the Lifetime Allowance reduced, individuals were able to apply for protection against any reduction to the Lifetime Allowance.  It is expected that individuals will be able to apply for protection against the Lifetime Allowance fall to £1 million in April 2016, as was available in previous years.

If the reduction to the LTA may affect you, please Contact Us and we will keep you informed of any updates and how to register for protection.

The HMRC website provides further information on the tax consequences of exceeding the LTA.