The lifetime allowance
Produced in partnership with Wyn Derbyshire of gunnercooke LLP
The lifetime allowance

The following Pensions guidance note Produced in partnership with Wyn Derbyshire of gunnercooke LLP provides comprehensive and up to date legal information covering:

  • The lifetime allowance
  • Lifetime allowance—basic principles
  • How much is the lifetime allowance?
  • Calculating the amount of lifetime allowance left over time
  • The lifetime allowance charge
  • The lifetime allowance excess lump sum
  • The lifetime allowance protections
  • Pension credits and debits on divorce
  • International enhancements
  • Fixed protection and death benefits
  • more

The basic principle underpinning the pensions tax regime is that members of registered pension schemes enjoy:

  1. various tax advantages while accruing retirement and life assurance benefits, and

  2. certain tax advantages when particular benefits are paid from a pension scheme (eg the tax-free pension commencement lump sum)

In exchange, and if tax charges are to be avoided, a registered pension scheme must comply with various restrictions as regards the:

  1. accrual of benefits

  2. payment of contributions, and

  3. payment of benefits

One of the key restrictions imposed on the accrual of members’ benefits under the pensions tax regime is the lifetime allowance.

Lifetime allowance—basic principles

While there is no legal limit on the value of benefits that an individual might accrue under a registered pension scheme, there is a limit as regards the aggregate amount of benefits that can be saved and drawn by and in respect of an individual from their registered pension schemes without triggering tax charges. That limit is the lifetime allowance.

The value of any pension benefits paid in excess of the lifetime allowance is subject to a tax charge known as the lifetime allowance charge—for further information, see The lifetime allowance charge, below.

Some of an individual's lifetime allowance will be used up every time a ‘benefit crystallisation event’ (BCE) occurs. Traditionally, a BCE will most often occur when an individual becomes