4. Lifetime allowance

You usually pay tax on any private pension savings above 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 scheme you’re in.

Type of pension scheme What counts towards your lifetime allowance
Most private pension schemes - including all personal and stakeholder schemes and most workplace schemes Pension savings that go towards paying your pension - this includes what you get as a lump sum and as a regular payment (known as an ‘annuity’)
Defined benefit pension schemes (sometimes known as ‘cash balance’ schemes) What your pension provider promises to give you when you retire - this is worth approximately £1.25 million if you’ll get £62,500 a year with no lump sum or £46,875 a year plus 25% of your pension as a tax-free lump sum
Hybrid pension schemes The higher amount out of your pension savings and what your pension provider promises to give you when you retire

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 your pension
  • 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.

Rates

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:

  • 25% if you get it as a regular payment (‘annuity’)
  • 55% if you get it as a lump sum

If you die before taking your pension HMRC bills the person who gets your pension for tax you owe on pension savings above your lifetime allowance.

If you have lifetime allowance protection

Lifetime allowance protection increases your lifetime allowance. Check your protection certificate to work out your lifetime allowance if you have:

  • primary protection
  • enhanced protection
  • fixed protection
  • fixed protection 2014
  • individual protection 2014

You’ll lose enhanced, fixed protection or fixed protection 2014 if you don’t opt out within a month of being automatically enrolled in a workplace pension.

You may also lose enhanced, fixed protection or fixed protection 2014 if you:

  • make new savings in a pension scheme
  • transfer money between pension schemes

Tell HM Revenue and Customs (HMRC) if you lose your protection.

You may be able to apply for individual protection 2014 if your pension savings were above £1.25 million on 5 April 2014.

Tell your pension provider what kind of protection you have and your protection certificate number when you decide to take your pension.

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).