From 6 April 2012, there will be a reduction in the lifetime allowance from £1.8 million to £1.5 million.
The lifetime allowance is the maximum amount of pension and/or lump sum that an individual can receive from their pension scheme that benefits from tax relief. There is no limit on the amount of benefits that a pension scheme can pay you but, if your pension benefits are more than the £1.5 million lifetime allowance, you will pay a tax charge called the lifetime allowance charge on the amount over your lifetime allowance.
If you currently receive a pension that has been paid since before 6 April 2006 you will need to take this into account when working out if your pension savings are more than the lifetime allowance. The lifetime allowance could have an impact on your pension benefit until you reach the age of 75, and you need to consider how much your pension fund will grow between now and then.
If you expect your pension savings to be more than £1.5 million when you come to take your pension benefits, you can apply for fixed protection to protect you against the lifetime allowance charge.
For advice on fixed protection, contact us to speak to one of our pension specialists.