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The Lifetime Allowance (LTA) was introduced in 2006 and tests the value of the pension benefits you hold. It includes the total of all the pensions you have, including the value of pensions promised through any final salary schemes.
Whilst there is no limit on the value of pension savings that can be built, if it exceeds the LTA when the pension is taken the amount in excess of the LTA will be charged at 55 per cent if taken as a lump sum or 25 per cent if left in the fund.
At various stages through this process it has been possible to protect against generally falling LTAs.
Recent protections are detailed below:
As of the 28 July 2016, you can now apply for Individual Protection 2014, Individual Protection 2016 and Fixed Protection 2016 online.
Is there Anything Else to Should Consider?
In addition to the pension savings, any proceeds from a registered group life policy will also count towards an individual’s LTA.
Given the combination of increased pension pots, higher salaries and the reduced LTA there is an increased chance that individuals could have “pensions” savings in excess of the LTA in the event of death in service. An individual with a pension pot of £800,000, and insured group life assurance of £600,000, would, in the event of retirement be within the LTA, but on death in service the combined sums could create a LTA charge for sums over the LTA.
There are solutions available and we would suggest that you speak to your usual financial adviser for more detail on the options.
Please also remember that the lifetime allowance is set to increase by CPI with effect from April 2018.