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Lifetime allowance

The lifetime allowance is the total capital value of all your pension arrangements, but not your state pension, which you can build up without paying extra tax.

If the value of your benefits when you draw them (not including any state retirement pension, state pension credit or any spouse’s, civil partner’s or dependant’s pension you may be entitled to) is more than the lifetime allowance you will have to pay tax on the excess.

The lifetime allowance for 2011/2012 was £1.8million and reduced to £1.5 million in 2012/13. It remained at £1.5 million for 2013/14 and for 2014/15 has been reduced to £1.25 million.

The lifetime allowance covers any pension benefits you may have in all tax-registered pension arrangements – not just the LGPS.

Most scheme members pension savings will be significantly less than the lifetime allowance.

There are protections called primary or enhanced protection for benefits earned up to 5 April 2006 in respect of those high earners affected by the introduction of the lifetime allowance from 6 April 2006.  If you already have primary or enhanced protection you will be unaffected by the reduction in the lifetime allowance from 2012/13. 

The reduction in the lifetime allowance in 2012/13 to £1.5 million and the subsequent reduction to the lifetime allowance in 2014/15 to £1.25 million led to new protections called fixed protection and fixed protection 2014. As well as fixed protection 2014, the government has announced that individual protection 2014 will be available as the lifetime allowance is reduced to £1.25 million for 2014/15.