As a rule, there is a tax charge to pay if savings in your pension pots exceed the lifetime allowance. The current pension lifetime allowance threshold is £1 million.
LIFETIME ALLOWANCES PENSION: There are ways to protect your pension pot from certain reductions to the lifetime allowance.
Your pension provider can tell you how much of the standard lifetime allowance you have used.
What if you belong to more than one type of pension scheme? In this case you must add up the allowance used in all the pension schemes that you belong to.
There are several different pension types on the market in the United Kingdom. The type of pension pot owned determines what counts towards the standard lifetime allowance.
You may need to provide your pension provider with information about other pension schemes you are in. They may need it to check whether you go above the standard lifetime allowance when:
Your pension provider will send you a statement to inform you if it goes above the lifetime allowance. They will deduct the tax before you start to receive your pension.
You must report any deducted tax using a Self Assessment tax return. If you use paper forms you will need to use form SA101. Your pension provider will give you help and information on this part of the process.
Note: What would happen if you die before you can take your pension? HM Revenue and Customs would send a bill to the person inheriting a pension to get the tax from them.
There are several ways to get the money paid to you. This will determine the rate of tax paid on pension savings above the lifetime allowance. The tax rates are:
The standard lifetime allowance reduced to 1.25 million on in April 2014. It then reduced even further to 1 million on the 6th of April 2016. Read the government publication 'Pension schemes: protect your lifetime allowance' for ways to protect your pension(s) from these reductions.
Note: Give your pension provider the type of protection and the protection reference number when you take money from the pension pot.
In some cases, you cannot withdraw cash from a defined contribution pension pot 'uncrystallised funds pension lump sums' such as when:
You must report certain changes to HMRC either online or by postal methods. This is because the loss of enhanced protection (or any type of fixed protection) can happen if:
Your employer will know whether they plan to enrol you in a workplace pension. Thus, to help ensure you do not lose pension protection, you can either:
Note: Inform HM Revenue and Customs any time you think you might have lost pension protection.
Some policy owners have a reduced lifetime allowance. That means they have the right to take their pension before 50. In most cases it was a pension scheme they joined before 2006.
But, it only applies to people in certain types of jobs (e.g. dance, modelling, and professional sports). They are likely to start taking their pension before they reach 55 years old.
Note: There is a list of members with protected pension ages who do not get a reduction in lifetime allowance. They include pension schemes for uniformed services (e.g. the police, armed forces, and fire services).
Lifetime Allowance on Private Pension Contributions in the United Kingdom