What is the lifetime allowance?

The lifetime allowance is the total amount you can build up in all your pension savings without incurring a tax charge.

Although there is no limit on the amount of authorised benefits that can be provided for an individual from their registered pension schemes, there is a limit on the amount of lumpsum you can receive before you must pay tax.

The 2023 spring budget removed the Lifetime Allowance limit.

Lifetime allowance protections

Lifetime allowance was first introduced in 2006, the lifetime allowance has varied in different tax years. The variations over the years have led HMRC (HM Revenue and Customs) to introduce a number of protections which mean that some people could apply for a personal lifetime allowance that is higher than the standard lifetime allowance.

Those who qualified for protection had already accumulated pension funds more than the lifetime allowance amounts when they were introduced. Although the deadlines to apply for some of these protections have already passed, you may be able to apply for more recent protections if your pension fund value exceeded the lifetime allowance when it was revised in the 2014 and 2016 budgets.

Find out more about applying for protection from the lifetime allowance charge.

Under current tax legislation the permitted maximum tax free lump sum is 25% of the lower of:

• £268,275 (unless you hold HMRC protection), or:
• the capital value of the member’s benefits being paid (after commutation decision has been taken into account).

If you hold certain lifetime allowance protections, the amount of tax-free lump sum you can take may be higher. The amount you are entitled to depends on the lifetime allowance protection that you hold.

Automatic Enrolment on fixed protection

If you have a Fixed Protection and your employer automatically enrols you into a qualifying workplace pension scheme, you will have 3 months to opt out.

If you opt out within that 3 month period you will keep your Fixed Protection.

If you do not opt out in time, you will lose your Fixed Protection.

If you keep your employer informed and provide sufficient evidence of your protection status your employer may be able to apply an exemption to auto enrolment.

If you become a member of the 2015 Scheme you will lose your Fixed Protection.

Trivial Commutation

The trivial commutation limit effective from 27 March 2014 is £30,000.

To take a trivial lump sum, the member's pension benefits from all schemes must be less than £30,000.