The Lifetime Allowance (LTA) is the total pension savings you can have without paying an extra tax charge.
The LTA increased in April 2018 to £1.03 million. This means that you will pay an extra tax charge if the value of your pension savings in all the pension schemes of which you have been a member add up to over £1.03 million when you come to take them.
If your savings were either over £1.03 million at 5 April 2018 or will be by the time you retire, you can avoid the tax charge by applying for ‘protection’ from HMRC. Even if you apply for protection, the value of your pension savings at retirement must be less than £1.25 million (which was the LTA at 5 April 2016) or the LTA in force at that time if it’s higher.
|Protection||What it does||Can I keep building up my pension(s)?|
|Individual protection 2016||Protects your LTA to the lower of:
- the value of your pension(s) at 5 April 2016 providing it's over £1 million
|Yes. But you must pay tax on money taken from your pension(s) that exceed your protected LTA.|
|Fixed protection 2016||Fixes your LTA at £1.25 million.||No, except in limited circumstances. If you do, you’ll:
- lose your fixed protection 2016
|Individual protection 2014||Protects your LTA to the lower of:
- the value of your pension(s) at 5 April 2014 providing it's over £1.25 million
|Yes. But you must pay tax on money taken from your pension(s) that exceed your protected LTA|
There is further information on the LTA here: https://www.gov.uk/tax-on-your-private-pension/lifetime-allowance
Applications for Fixed Protection 2016 and Individual Protection 2016 can be made online using a new HMRC self-service tool.
If you wish to apply you will need:
- Your Government Gateway credentials, you would have received these if you have created an account for HMRC online services (i.e. registered for self-assessment).
- If you do not have this, you can apply by clicking ‘Don’t have a Government Gateway account’ underneath the sign-in boxes
- Input your name, email and choose a password. It will provide you with a username which is worth noting down.
- It will ask for two-step verification, the easiest way of navigating this is via an access code which they will send via text message to your mobile phone.
- After successfully entering the access code it will ask for your first name, last name, NI number and date of birth.
- The next screen asks for information from either your payslip / P60 or passport. The passport information is the most straightforward way of passing security here and you will need your passport number, names and expiry date.
- After successfully inputting all of this, it takes you directly to the Yes or No Protection questions which form your application (if you applied for Individual Protection – Fixed Protection carries no such questions) for reference these are:
- Did any of the following happen before 5 April 2016?
- You got money from your pensions
- You transferred a pension to a scheme held overseas
- You turned 75 with pension savings which you hadn't yet taken
- Have you put money into a pension scheme held overseas?
- Only include contributions you made between 6 April 2006 and 5 April 2016, which you got UK tax relief on.
- What were your UK pensions worth on 5 April 2016?
- Include any money you have in pension pots.
- If you have any pensions where your employer will pay you a set income once you take them, include the value of them.
- Have any of your pensions been shared in a divorce since 5 April 2016?
- This is called a pension sharing order and is issued by a court.
It will then take you to a summary page where you need to press the green button at the bottom to submit your application.
Questions 1,2 and 4 should be straightforward however you will need some figures for question 3.
- Ask Legal & General for the value of your SIPP as at 5 April 2016. Remember to quote your NI number so they can identify you. They can be contacted here: email@example.com or 0345 302 0323. Or read our guide here:
Sainsbury's Pension Scheme
- If you are a member, you can get the value of your pension in the Sainsbury’s Pension Scheme at 5 April 2016 from Willis Towers Watson. You can log into ePA if you have registered here or they can be contacted on firstname.lastname@example.org or 0800 916 8087. Or read our guide here.
- You will need to multiply the pension you’ll get each year by 20.
- You will also need to get values for any pensions you built up before working for Sainsbury’s or if you contribute to a private pension also. Remember, if they are defined contribution like your Sainsbury’s SIPP, it is just the value as at 5 April 2016 you need. If it is defined benefit like the Sainsbury’s Pension Scheme, you’ll need to multiply the annual amount by 20. Either way, if you let the administrator know you need the amounts for LTA purposes, they should provide the relevant amount.
- Don't include any pensions you've already taken or the State Pension.