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Your pension lifetime allowance

If the value of your pensions is close to £1,055,000, or likely to reach this by the time you retire, then you need to know about the lifetime allowance.

The lifetime allowance is set by the government and limits the total amount you can build up in pension benefits over your lifetime while still enjoying the full tax benefits. If you go over the allowance you will generally pay a tax charge on the excess when you take a lump sum or income from your pension pot, transfer overseas or reach age 75 with unused pension benefits. Any excess may be subject to tax charges of:
 

  • 25% of any income
  • 55% of any lump sum
This limit applies to the value of all your pension arrangements. This includes:
  • final salary (defined benefit) schemes
  • personal pensions (also known as defined contribution pensions)
  • any pension that has paid you a lump sum or income

However, it does not include your State pension.

How the lifetime allowance works

You could be taxed if your pension exceeds the lifetime allowance when it is tested. It’s important to understand exactly how and when the test is applied, and what is included.

When is it tested?
What is tested?
Examples

Lifetime allowance guide

Find out more about how the lifetime allowance could affect you.

Download the lifetime allowance guide
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Protecting against the lifetime allowance charges

If you’re getting close to the pension lifetime allowance, there are things you can do to safeguard your money. These are known as ‘protection’ and they effectively give you your own lifetime allowance, but there are restrictions as well.

 

  • Fixed protection 2016 provides you with a lifetime allowance of £1.25m. However you can’t apply for this protection if you made any contributions after the 5th April 2016.
  • Individual protection 2016 gives you a personalised lifetime allowance that is equal to the value your pensions on the 5th April 2016. To be eligible your pensions will need to have been worth £1m or more. Your protection amount is capped at £1.25m. You can still make contributions to your pension, but you are likely to face tax charges.

What to do next

Explore an ISA

If you’re running out of allowances for your pension, an ISA could be an appealing tax-efficient alternative. Our ISA has low costs and an extensive range of investments to choose from.

Explore our ISA

Explore an Investment Account

If you’ve used up your ISA allowance as well, you don’t have to stop investing. You can put as much as you want in our investment accounts – with the same low costs and great choice as our Stocks and Shares ISA and SIPP.

Explore our Investment Account

Remember that the value of investments can go down as well as up so you may get back less than you invest. The value of tax savings and eligibility to invest in an ISA depend on personal circumstances. All tax rules may change in future. Pension money cannot usually be withdrawn until age 55.

Ready to chat?

Talk to someone about your retirement options in more detail

We can help

Close to retirement but unsure about the options and pitfalls ahead? We can offer guidance and advice to help you find the best solution for your retirement. Call us on 0800 368 6882, Monday to Friday, 9am - 5pm.

Fidelity’s retirement service

Pension Wise

The government’s Pension Wise service offers free, impartial guidance to help you understand your options at retirement. You can access the guidance online or call on 0800 138 3944.

www.pensionwise.gov.uk

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This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to an authorised financial adviser.