The Standard Lifetime Allowance

Posted February 18th, 2013

Let’s have a quick recap of the key points of the changes to Lifetime Allowance.

From early April 2014 the maximum amount that you can contribute to your pension during your entire life will drop from £1.5m to
£1.25m. Therefore, anything that you have in your pension pot over the limit will be subject to a 55% tax charge.

Let’s say you currently have a pension pot of £1.47m. This means that you will be over the new limit by £220,000. That amount will be taxed at 55%. £220,000 X 55% = £121,000.That’s a pretty hefty amount right there! Surely nothing to be sneezed at.

The government is introducing two methods of protection; but as always, there’s a catch.

Fixed Protection

Fixed protection will enable you to secure maximum benefit of the greater of £1.5m or the Standard Lifetime Allowance. If the legislation changes in the future and we see a rise in Lifetime Allowance then you will benefit from that. You have to apply by the 6th April and (here’s the catch) the protection will be lost if any further contributions are made or if there are any further benefits accrued after that date.

Personalised Protection

Personalised protection means that the maximum benefits for the member will be the greater of an individual’s pension rights on the 5th April and the Standard Lifetime Allowance. So if your pension pot is valued at the afore mentioned £1.47m then all well and good and(!) you can carry on contributing……….or can you?

The problem is that we can’t know for sure until we can get a look at the small print and even then, applying that small print and testing an individual’s allowance can prove to be a bit of a challenge in itself.

Bottom line is that it’s never too early to start getting some advice on such matters. It can save you a lot in the long run and make sure you’re prepared for the caveats in the small print.

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