What is the pension lifetime allowance?

Are you planning for retirement and wondering about the limits on your pension benefits? The pension lifetime allowance might be a term you’ve come across. It’s an important part of retirement planning, and understanding it can have a big impact on your financial future. Let’s dive into what the pension lifetime allowance is and what the recent changes mean for you.

This guide covers:

• What exactly is the pension lifetime allowance?
• Who needs to pay attention to the pension lifetime allowance?
• When does the lifetime allowance apply?
• Key points to remember
• Worried about your pension?

What exactly is the pension lifetime allowance?

Simply put, the lifetime allowance is the maximum amount you can accumulate in pension benefits while still enjoying full tax benefits. For the tax year 2023/24, this limit is set at £1,073,100.

In the past, exceeding this amount meant paying a lifetime allowance charge on the excess pension savings. However, from 6 April 2023, this charge has been removed. Now, certain lump-sum payments that would have been subject to this charge will instead be taxed as income at the recipient’s marginal rate.

It’s important to note, though, that from April 2024, the lifetime allowance will be removed, so that there are no limits applied to pension-style benefits.

Who needs to pay attention to the pension lifetime allowance?

Anyone who’s pension will exceed the limit before April 2024 should look into getting professional, financial advice. This will help you figure out the best steps forward, just be sure to choose a financial advisor you trust. Too often, people are scammed out of their hard earned money and mis-sold a pension. If you’re worried this has happened to you, give our team a call today.

When does the Lifetime Allowance apply?

There’s no cap on how much you can accumulate in pension benefits. However, checks are carried out at specific times to see if your pension benefits exceed the lifetime allowance. These checks are typically done:

• When you start drawing a defined benefit pension.
• When you take an income or lump sum from a defined contribution pension.
• If you transfer a pension overseas before age 75.
• On your 75th birthday if you have a pension in drawdown or untouched.
• If you die before age 75 with untouched pensions.

After age 75, there are usually no more checks against the lifetime allowance.

Key points to remember

• The standard lifetime allowance is £1,073,100, but this can vary under certain circumstances.
• The lifetime allowance applies to all personal and workplace pensions, except the State Pension and overseas pensions.
• Exceeding the allowance now leads to tax on the excess as earned income.
• Consult with a financial adviser for personalised advice and implications on your tax obligations.
• The pension lifetime allowance is set to be removed in April 2024

Worried about your pension? Spencer Churchill Claims Advice is here to help

The world of pensions can be confusing and, unfortunately, there are advisors out there who take advantage of this. Pension mis-selling is an all too common problem, leaving thousands of people with pension pots that are far lower than they should be.

If you’re worried you’ve been mis-sold a pension, give our experts a call today. They will take the time to fully understand your situation and will work with you to see if you have a valid financial claim. We can’t guarantee an outcome, but we do promise to do everything we can to make sure you can enjoy your golden years to their fullest.