The information provided on this page is intended as a general overview of the issues and options surrounding Lifetime Allowance. If you think you may be effected, you should seek independent financial advice.
If your pension savings are worth more than £1 million you may need to protect your pension savings from the Lifetime Allowance tax charge.
What is the Lifetime Allowance?
The Lifetime Allowance (LTA) is the amount of savings you can take from all of your pension arrangements without facing a tax charge.
The LTA is currently £1.25 million but is reducing to £1 million from 6 April 2016.
From 6 April 2016 if the total value of your benefits from all of your pension arrangements is more than £1 million, you may face a tax charge. For ULPF, USS and NHS Pension Scheme benefits, the LTA is calculated by multiplying the annual pension by 20, and adding on the amount of any cash lump sum.
How much is the Lifetime Allowance tax charge?
The LTA tax charge is
- 55% of any amount you take from your pension savings as a lump sum that is over the LTA; or
- 25% of any amount you take from your pension savings as pension income that is over the LTA
Do you know the value of all your pension arrangements?
The LTA applies to the value of your combined UK registered pension schemes and some overseas schemes.
USS members can obtain the details of the LTA value of their USS benefits from the USS Benefit Modeller website, www.ussbenefitmodeller.co.uk
NHS members can obtain the details of the LTA value of their NHS Pension benefits from the Total Rewards Statement website, https://www.totalrewardstatements.nhs.uk
ULPF members can use their most recent benefit statement to calculate the value of the Lifetime Allowance of their ULPF benefits. Simply multiply the current pension by 20 and add on the standard lump sum.
Do I need to do anything now?
If your benefits are approaching or are over the LTA, you may need to act to protect yourself from a tax charge even if you are not yet nearing retirement.
If you have existing protection but know that you may lose this you may also need to consider whether to apply for the new protections.
What do I need to do to protect my pension savings?
From April 2016, when the LTA is reduced, HMRC will be introducing two new protections from the drop in the LTA:
- Fixed Protection 2016, and
- Individual Protection 2016
Fixed Protection 2016
Fixed Protection 2016 will be available to all scheme members. People who take Fixed Protection 2016 will retain a LTA of £1.25m, providing that they do not breach certain terms. USS recommend that people who apply for Fixed Protection 2016 withdraw from the scheme and the NHS Pension Scheme suggests its members take financial advice on whether they should withdraw.
USS members can also choose to take an option known as Enhanced Opt Out, in which future benefit accrual ceases, however a lower Employee and Employer contribution is paid in order to maintain Death In Service and Incapacity Retirement cover.
If you wish to withdraw from your University pension scheme or apply for Enhanced Opt Out, please contact the pensions team by emailing firstname.lastname@example.org.
In addition to Fixed Protection 2016, people can also apply for Individual Protection 2016 or Individual Protection 2014, providing they meet the relevant criteria.
Individual Protection 2016
Individual Protection 2016 will be available to members whose total LTA across all pension arrangements is over £1 million on 5 April 2016. Individual Protection 2016 will provide a personal LTA, based on the value of your benefits (subject to an overall maximum of £1.25 million). For example, if your benefits have a LTA value of 1.13 million on 5 April 2016, an application for Individual Protection 2016 will secure a personal LTA of £1.13 million. If your benefits have a LTA Value of £1.4 million, you can still apply for Individual Protection 2016, however the personal LTA will be capped at £1.25 million.
It is possible for people who have applied for Individual Protection 2016 to also apply for Fixed Protection 2016.
You will be able to apply to HMRC for these new protections by using a new on-line self-service system which will be available from July 2016. If you will be retiring before the new online application system is available and need to apply for either Fixed Protection 2016 or Individual Protection 2016, as an interim measure, scheme members will be able to write to HMRC between April 2016 and July 2016 and HMRC will check the details of their protection and respond in writing. This can then be presented to the scheme administrator in advance of the full application being made after July 2016.
You can find more information about how to do this along with other information about the existing protections and when these may be lost at Tax on your private pension contributions.
Individual Protection 2014 Reminder
It is still possible for people who had benefits with a LTA of over £1.25 million on 5 April 2014 to apply for Individual Protection 2014. This is similar to Individual Protection 2016, described above, but can provide a personal LTA of up to £1.5 million. The option to apply for Individual Protection 2014 will be available for people who qualify until 5 April 2017.
It is possible for people who have applied for Individual Protection 2014 to also apply for Fixed Protection 2016.
Your pension savings may already be protected
The LTA was introduced in 2006 and was reduced in 2012 and again in 2014.
Each time the LTA reduced, people who had already planned their pension savings on the basis of the higher LTA could protect their pension savings by applying to HMRC and should have received a certificate to confirm their protection. You may still be subject to the LTA charge if you lose this protection.
Further information can be found on the following websites: