The value of your investments can go down as well as up and you may get back less than you paid in. Laws and tax rules may change in the future. Your own circumstances and where you live in the UK also have an impact on tax treatment.

What is the lifetime allowance?

The lifetime allowance is the total amount of pension benefits you can build up in your lifetime before you need to pay a lifetime allowance charge. It applies to all your personal and workplace pensions but not your State Pension or any overseas pensions.

The standard lifetime allowance is currently £1,073,100. Under certain circumstances, people may have a different lifetime allowance – you can check if this applies to you by contacting your financial adviser or by logging in on the government’s website.

It’s not a limit – you can save more than this if you want to. Your pension savings will be checked against the lifetime allowance at certain times.

Until 6 April 2023 the lifetime allowance charge was a fixed percentage of the excess over lifetime allowance when you took your pension savings or at age 75. This fixed percentage has now been removed by the government from 6 April 2023. You’ll now only pay tax on any excess over your lifetime allowance as earned income under PAYE rules.

If you're not sure if this will affect you, it's best to speak to a financial adviser. They'll be able to give you some reassurance and let you know the impact of the lifetime allowance on how much tax you’ll need to pay.

 

 

 

When will lifetime allowance checks happen?

At certain times your pension provider will check to see if the value of your pension benefits is over the lifetime allowance.

These checks are typically carried out if you:

  • start receiving money from a defined benefit pension
  • take an income or lump sum from a defined contribution pension
  • transfer a pension plan overseas before age 75
  • turn 75
  • die before age 75 and have pension savings you haven’t touched

Your lifetime allowance wouldn’t normally be checked:

  • after age 75 - it’s assumed you’ll already have paid any tax charges by that time
  • when you transfer your pension plan to another provider
  • if you take a lump sum under ‘small pot rules’ (which is normally a pension plan worth £10,000 or less)

 

How the pension lifetime allowance works

The lifetime allowance applies to the total value of all your pension plans. But how you work out the value of your pension plan can look different depending on the type of plan you have. We’ll help you understand what this means for you.

  • Defined benefit (or final salary) pension

    If you have this type of pension plan, the total value of your plan can be quite complicated to work out because it depends on the way your scheme works. So:

    • If you know what your yearly pension income will be at your retirement date, you can multiply this by 20. You’ll also need to add any tax-free lump sum entitlement on top of this.
    • If you don’t know your yearly pension income amount, then you’ll need to contact your scheme to work this out for you.

    Either way, your scheme will be able to tell you exactly what the value of your pension plan is, and how much of your lifetime allowance will be used. So it’s best to get in touch with them.

  • Defined contribution pensions

    If you have this type of pension plan, the value will be based on:

    • how much you've paid in
    • how your investments have performed

    This is the value that will be checked against your lifetime allowance. We covered when the checks will happen earlier on this page.

If you have a pension plan already in payment then you should consider this too – it might have contributed towards your lifetime allowance

 

How can I check the value of my pension plans?

You can check how much is in all your pension plans with your pension provider(s) or you can get in touch with your financial adviser. 

If you have a Standard Life pension plan you can check your plan's value by logging in or downloading the app.

How to keep track of multiple pensions

Remember, the lifetime allowance applies to all of your pension plans. So, if you have several pensions, bringing them together into one plan could give you a clearer picture of the total value of your savings. It could also make it easier to keep track of how much you take out when the time comes.

Although keep in mind combining pensions is not right for everyone - your other pensions could have valuable guarantees and benefits you will lose if you transfer.

What happens if I don't take my pension?

We will still need to do a lifetime allowance check at age 75 but there will no longer be a lifetime allowance charge. Any excess will be taxed as earned income under PAYE rules.

If you haven't taken your pension savings and you die before 75, any death benefits above the lifetime allowance will be subject to tax as earned income by your beneficiary(ies) under PAYE rules.

What can I do if I'm approaching the lifetime allowance?

If you're approaching the lifetime allowance you should speak to a financial adviser. It's a complicated topic and the impact will be different for everyone. An adviser can explain how you're affected and what you can do about it.

If you want to use a financial adviser, you should always make sure they're authorised by the Financial Conduct Authority (FCA).

The government's MoneyHelper service has a useful guide to help you find a financial adviser.

Or if you're over age 50 you could try Pension Wise - they offer free, impartial guidance on pensions face-to-face or over the phone.

Looking for more on pension tax or allowances?

  • Pension annual allowance

    Find out what the pension annual allowance means for you, how it works and what to do if it affects you.

    Read our guide

  • Tax in retirement

    Don't pay more tax than you need to in retirement. Find out how to be tax-efficient with your pension money.

    Get some helpful tips

  • Passing on your pension

    Pensions are a tax-efficient way to pass on your wealth. Here's how to do it in the right way.

    Learn more