However, if you have a large amount saved in your pension, you need to know about the lifetime allowance (LTA), which limits the tax advantages available to you.
The lifetime allowance is the total amount of savings you are allowed to build up in a pension arrangement during your lifetime without an extra tax burden. The allowance includes personal contributions, employer contributions, tax relief and growth on your pension fund.
The standard lifetime allowance for tax year 2023/2024 is £1,073,100. The government has announced that with effect from the 2024 tax year it intends to abolish the lifetime allowance.
If the value of your pension savings is more than the allowance you may have to pay a tax charge on the excess. When the value of your pension savings is near to the limit you should consider taking action. Remember, too, that if you are a member of more than one scheme, the allowance applies to the total of all your pension savings.
When you take benefits from a registered pension scheme, the value of the benefits will be tested against the lifetime allowance. This is called a benefit crystallisation event (BCE).
For further information on the lifetime allowance, including enhanced and fixed protection, please refer to Money Helper. If your pension savings are already close to the lifetime allowance, we would encourage you to seek free guidance from Pension Wise.
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