You usually pay tax if your pension pots are worth more than the lifetime allowance. This is currently £1.25 million.
Check how much lifetime allowance you’ve used
Ask your pension provider how much of your lifetime allowance you’ve used.
If you’re in more than one pension scheme, you must add up what you’ve used in all pension schemes you belong to.
What counts towards your allowance depends on the type of pension pot you get.
|Type of pension pot||What counts towards your lifetime allowance|
|Defined contribution - personal, stakeholder and most workplace schemes||Money in pension pots that goes towards paying you, however you decide to take the money|
|Defined benefit - some workplace schemes||Usually 20 times the pension you get in the first year plus your lump sum - check with your pension provider|
Your pension provider may ask for information about other pension schemes you’re in so they can check if you’re above your lifetime allowance when you:
- decide to take money from a pension pot
- turn 75
- transfer your pension overseas
Pay tax if you go above your lifetime allowance
You’ll get a statement from your pension provider telling you how much tax you owe if you go above your lifetime allowance. Your pension provider will deduct the tax before you start getting your pension.
You still need to report the tax deducted by filling in a Self Assessment tax return - you’ll need form SA101 if you’re using paper forms. You’ll get information from your pension provider to help you do this.
If you die before taking your pension HMRC bills the person who inherits your pension for the tax.
The rate of tax you pay on pension savings above your lifetime allowance depends on how the money is paid to you - the rate is:
- 55% if you get it as a lump sum
- 25% if you get it any other way, eg pension payments or cash withdrawals
If you have lifetime allowance protection
Lifetime allowance protection increases your lifetime allowance.
Your protection certificate tells you:
- how much lifetime allowance you have
- the type of protection you have, eg ‘primary’, ‘enhanced’ or ‘fixed’
- your protection certificate number
Tell your pension provider the type of protection and certificate number when you decide to take money from your pension pot.
You may be able to apply for ‘individual protection 2014’ if your pension savings were above £1.25 million on 5 April 2014.
Withdrawing cash from a pension pot
You can’t withdraw cash from a defined contribution pension pot (‘uncrystallised funds pension lump sums’) if you have:
- primary or enhanced protection covering a lump sum worth more than £375,000
- ‘lifetime allowance enhancement factor’ if your unused lifetime allowance is less than 25% of the cash you want to withdraw
When you lose your protection
You can lose enhanced, fixed or ‘fixed protection 2014’ if you:
- don’t opt out within a month of being automatically enrolled in a workplace pension
- make new savings in a pension scheme
- transfer money between pension schemes
Your employer doesn’t have to automatically enrol you in a workplace pension if you give them evidence of your lifetime allowance protection (eg a certificate from HMRC).
Tell HM Revenue and Customs (HMRC) if you lose your protection.
If you have the right to take your pension before 50
You may have a reduced lifetime allowance if you have the right to take your pension before you’re 50 under a pension scheme you joined before 2006.
This only applies to people in certain jobs (eg professional sports, dance and modelling) who start taking their pension before they’re 55.
Your lifetime allowance isn’t reduced if you’re in a pension scheme for uniformed services, eg the armed forces, police and fire services.