What is the pension lifetime allowance in 2018/19?
You can save as much as you want to in your pension – but if it exceeds a total amount, you could be hit with a hefty tax charge.
This total is called the lifetime allowance.
In 2018/19 the lifetime allowance has been increased to £1.03m (rising again to £1.055m in 2019/20).
The chart below shows the history of the lifetime allowances.
From 2018/19, the lifetime allowance will increase every year by inflation (as measured by the Consumer Prices Index rate the previous September).
In September, inflation stood at 2.4%. That means the lifetime allowance in the 2019/20 tax year, starting on 6 April 2019, will be £1,055,000.
What is the pension lifetime allowance charge?
Any amount you have in your pension above the lifetime allowance is subject to a tax charge.
The charge can be applied in either of the two ways or a combination of both depending on how you take the excess benefits above the lifetime allowance.
Protecting your pension lifetime allowance
In order to avoid a hefty tax charge on your savings, you’ll need to monitor your pensions closely to ensure you don’t exceed the lifetime allowance.
But there's another tactic you can use – you apply for ‘protection’ from the recent reductions in the lifetime allowance, which is available to you in recognition that you were previously saving into your pension with a higher allowance in mind.
There are two types of protection you can apply for which have replaced previous versions:
Individual protection 2016
You can apply for individual protection 2016 if your pension or pensions were worth more than £1m at 5 April 2016.
This protects your lifetime allowance at the value of your pensions on 5 April 2016 or £1.25m, whichever is the lowest.
You can keep on building up your pension, but must pay tax on money taken from your pensions that exceed your protected lifetime allowance.
You can still apply if you already have previous protection, ie:
- enhanced protection
- fixed protection
- fixed protection 2014
- fixed protection 2016
You can’t apply if you have either primary protection or individual protection 2014.
Fixed protection 2016
Fixed protection 2016 fixes your lifetime allowance at £1.25m, but you can no longer contribute to your pension. This tends to be the right option for people who no longer want or need to save into a pension any more.
If you do put money into a pension once you have fixed protection, you’ll lose it and will have to pay a tax charge on the excess
- You can apply for fixed protection 2016 if you:
- or your employer haven’t added to your pension since 5 April 2016
- opted out of any workplace schemes by 5 April 2016
- already have individual protection 2014
You can’t apply if you have enhanced protection, primary protection, fixed protection or fixed protection 2014.
How do I apply for lifetime allowance protection?
You can apply for either individual protection or fixed protection through the government’s website