Guidance

Pension schemes: value your pension for lifetime allowance protection

Work out the value of your pension to apply for protection from the lifetime allowance reduction.

Overview

To apply for individual protection from the 2016 reduction in lifetime allowance you need to tell HM Revenue and Customs the:

  • income you’ve taken from pensions before 6 April 2006
  • lifetime allowance you used between 6 April 2006 and 5 April 2016
  • value of pensions you haven’t taken yet
  • money (which gained UK tax relief) you put into an overseas pension between 6 April 2006 and 5 April 2016

If your pension scheme administrator can’t provide this information you’ll need to work them out.

To do this you may need to work out if you’ve taken any money from the pension scheme - known as a benefits crystallisation event (BCE).

Income taken from pensions before 6 April 2006

This is known as amount A, and is the annual rate at 5 April 2016.

If you had more than one pension in payment on 5 April 2006, you should include the total of the values of each pension.

Where a BCE has occurred, you’ll need to know the lifetime allowance for:

  • 5 April 2016
  • the date of the BCE
Tax year Standard lifetime allowance
2018 to 2019 £1,030,000
2017 to 2018 £1,000,000
2016 to 2017 £1,000,000
2015 to 2016 £1,250,000
2014 to 2015 £1,250,000
2013 to 2014 £1,500,000
2012 to 2013 £1,500,000
2011 to 2012 £1,800,000
2010 to 2011 £1,800,000
2009 to 2010 £1,750,000
2008 to 2009 £1,650,000
2007 to 2008 £1,600,000
2006 to 2007 £1,500,000

If you have any of these protections, and they apply at the time of your first BCE, use the one relevant to that protection, as follows:

Type of protection Effective from Amount
Fixed protection 2012 6 April 2012 fixes the standard lifetime allowance at £1.8 million
Fixed protection 2014 6 April 2014 fixes the standard lifetime allowance at £1.5 million
Individual protection 2014 6 April 2014 for members with pension savings valued over £1.25 million on 5 April 2014 - fixes the standard lifetime allowance at a relevant amount (the value of the member’s pension savings on 5 April 2014) capped at £1.5 million

this means the standard lifetime allowance can range from more than £1.25 million but no more than £1.5 million
Fixed protection 2016 6 April 2016 fixes the standard lifetime allowance at £1.25 million
Individual protection 2016 6 April 2016 for members with pension savings valued over £1 million on 5 April 2016 - fixes the standard lifetime allowance at a relevant amount (the value of the member’s pension savings on 5 April 2016) capped at £1.25 million

this means the standard lifetime allowance can range from more than £1 million but no more than £1.25 million

Pensions other than drawdown pensions

If you haven’t had any BCEs since 6 April 2006, multiply the annual rate due to you at 5 April 2016 by 25.

If you’ve had a BCE since 6 April 2006:

  1. Multiply the annual rate due to you at the date of your first BCE by 25.
  2. Multiply this by the lifetime allowance at 5 April 2016.
  3. Divide it by the lifetime allowance at the date of the BCE.

Drawdown pensions without BCEs

For individual protection 2016 you should multiply 80% of the annual rate due to you by 25.

The annual rate is different depending on the type of drawdown pension at 5 April 2016:

  • capped drawdown - use the maximum amount of capped drawdown pension you could take for the year
  • flexi-access drawdown (previously flexible drawdown) - use the maximum amount of capped drawdown pension you would have got for the year the flexible drawdown declaration was accepted by the scheme administrator had that declaration not been made
  • capped drawdown fund converted to flexi-access drawdown between 5 April 2015 and 6 April 2016 - use the maximum annual amount of capped drawdown pension that you could have got in the year of the conversion had that conversion not happened

Drawdown pensions with BCEs

If you’ve had a BCE:

  1. Multiply the annual rate due to you by the lifetime allowance on 5 April 2016.
  2. Divide it by the lifetime allowance at the date of the BCE.

The annual rate is different depending on the date of the BCE.

If the BCE was before 6 April 2011 you should use the maximum annual amount you could have been paid in the year of the first BCE.

If the BCE was 6 April 2011 to 5 April 2015, for:

  • capped drawdown pensions - use the maximum amount you could have been paid as capped drawdown pension in the year of the first BCE
  • flexible drawdown pensions - use the maximum annual amount you could have been paid as capped drawdown pension immediately before the BCE had a flexible drawdown declaration not been made

Where the BCE was 6 April 2015 to 5 April 2016, for:

  • capped drawdown pensions - use 80% of the maximum amount you could have been paid in the year of the first BCE
  • flexi-access drawdown (previously flexible drawdown) - use 80% of the maximum annual amount that you could have been paid as capped drawdown pension immediately before the BCE if a flexible drawdown declaration hadn’t been made
  • flexi-access drawdown but previously capped drawdown - use 80% of the maximum annual amount of capped drawdown pension that you could have got in the year of the conversion had that conversion not happened

More information is available on the different types of drawdown pensions and the different taxation limits that apply to both.

Lifetime allowance used between 6 April 2006 and 5 April 2016

This is known as amount B.

  1. Take the lifetime allowance at 5 April 2016 and divide it by the lifetime allowance at the date of the BCE.
  2. Multiply this by the BCE amount.
  3. Repeat for each BCE and total the amounts together.

Pensions you’ve not taken yet

This is known as amount C.

Add together:

  1. The actual value of any money purchase arrangements (known as a defined contribution fund) at 5 April 2016.
  2. The amount of annual payment at the relevant protection date for any defined benefits pensions you’ve built up, multiplied by 20. If you can take a separate lump sum (but don’t have to for your pension to be paid) you should add the value you’ve built up to that date.
  3. Insurance contracts included in your pension savings, which should be valued in line with the protocol of the Association of British Insurers.
  4. The actual value of the policy for any cash balance arrangements at 5 April 2016.

Don’t include the value of any death benefit in this calculation.

This calculation assumes that the values won’t change because of age or health.

Money put into overseas pensions between 6 April 2006 and 5 April 2016

This is known as amount D.

If you’re a relieved member of a relieved non-UK pension you’ll need to include the total amount you contributed that gained UK tax relief between 6 April 2006 and 5 April 2016.

This is called the untested portion.

Published 27 July 2016
Last updated 6 April 2018 + show all updates
  1. Rates, allowances and duties have been updated for the tax year 2018 to 2019.
  2. Amendments to reflect you can no longer apply for individual protection 2014.
  3. First published.