The Government has set a limit on the amount that you can have in all forms of pension you hold, which for 2016/17 is £1m. Every time you take benefits from your pension, you ‘crystallise’ that proportion, and the relevant portion of your lifetime allowance is used up. If you reach age 75 without securing an income via an annuity you will also have your benefits tested against the lifetime allowance. If you have had more in total than the £1m limit, you will face the lifetime allowance charge. Please remember that tax limits can change in the future.
If the excess is paid as a lump sum, HMRC will deduct 55% as a tax charge, while 25% will be deducted if you use those excess funds to provide income. If you have any form of lifetime allowance protection you may be limited in your exposure to the lifetime allowance.