The Lifetime Allowance is changing
Changes to the Lifetime Allowance in 2016
The lifetime allowance is currently £1.25 million but from 6th April 2016 will be reduced to £1 million. If your pension pots are likely to be valued over or approaching £1 million as of the 5th April 2016, you could consider applying for one of the two forms of protection that will be available. The lifetime allowance tax charge is 55% of any lump sum and 25% of any income you take from your pension savings that is over the lifetime allowance.
Will you be affected?
If you have defined contribution pensions such as personal, stakeholder and most workplace schemes, it is the total fund values that are tested against the lifetime allowance. If you have defined benefit schemes such as a final salary or career average pensions then the tested value is 20 times the pension you receive in the first year plus your lump sum.
How can you prepare for the change in the lifetime allowance?
If your pension pots are likely to be valued over or approaching £1 million as of the 5th April 2016, you could consider applying for one of the two forms of protection that will be available. If you already have a protection certificate from HMRC and you are not likely to lose this protection then as long as you keep to the conditions of the protection then you do not need to do anything.
Click here to see our Spotlight note which covers the Lifetime Allowance in more detail.