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THE LIFETIME ALLOWANCE
The Lifetime Allowance is the total value of all pension benefits you can have without triggering an excess benefits tax charge. If the value of your pension benefits when you draw them (not including any state retirement pension, state pension credit or any spouse’s, civil partner’s or dependant’s pension you may be entitled to) is more than the Lifetime Allowance, or more than any Primary Lifetime Allowance protection or Enhanced Protection you may have, you will have to pay tax on the excess benefits.
The Lifetime Allowance covers any pension benefits you may have in all tax-registered pension arrangements – not just the LGPS.
| Tax Year | Lifetime Allowance |
| 2010/2011 | £1.80 million |
| 2011/2012 | £1.50 million |
| 2012/2013 | £1.50 million |
| 2013/2014 | £1.50 million |
| 2014/2015 | £1.50 million |
| 2015/2016 | £1.50 million |
For pensions that start to be drawn on or after 6 April 2006, the capital value of those pension benefits is calculated by multiplying your pension by 20 and adding any lump sum you draw from the pension scheme.
For pensions already in payment before 6 April 2006, the capital value of these is calculated by multiplying the current annual rate, including any pensions increase, by 25. Any lump sum already paid is ignored in the valuation.
When any LGPS benefit, or any other pension arrangement you may have, is put into payment you use up some of your Lifetime Allowance – so even if your pensions are small and will not be more than the Lifetime Allowance you should keep a record of any pensions you receive. If you have a pension in payment before 6 April 2006, this will be treated as having used up part of your Lifetime Allowance.
If your LGPS benefits are more than your Lifetime Allowance or, if you have registered for them, your Primary Lifetime Allowance protection or Enhanced Protection you will have to pay tax on the excess. If excess benefits are paid as a pension the charge will be 25%, with income tax deducted on the ongoing pension payments; if the excess benefits are taken as a lump sum they will be taxed once only at 55%.
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To have Primary Lifetime Allowance Protection or Enhanced Protection, you must have registered with HM Revenue and Customs by 5 April 2009.
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