Lifetime allowance


What is the current pension lifetime allowance?

The lifetime allowance or LTA is the limit the government has set for the value of funds that you can have across all your pension pots in total. The current lifetime allowance until 2024/25 is £1,073,100. From here onwards it is scheduled to be removed.

How to find out if you are near the lifetime allowance

To discover whether you are near the lifetime allowance you need to value all of your workplace and personal pensions as follows:

Type of pension How to value it
Personal pensions or defined contribution schemes including SIPPs - that are not yet in payment The current value of the investments and cash
Final salary or defined benefit pensions  - that are not yet in payment The annual pension x 20 plus any additional tax free cash entitlement
Pensions which have been accessed on or after 6 April 2006 The percentage of the lifetime allowance used up as shown on the certificate issued by the pension provider. This percentage is then applied to the current LTA
Final salary or defined benefit pensions - which were accessed on or before 5 April 2006
Annuities -  purchased on or before 5 April 2006
The annual pension x25 at the first time you take benefits on or after 6 April 2006. This is then adjusted to take into account any change in the LTA between the date you first took benefits after 6 April 2006 and today.
Pensions in capped drawdown  - that started before 6 April 2006 80% of the maximum income you are permitted to take x25 at the first time you take benefits on or after 6 April 2006. This is then adjusted to take into account any change in the LTA between the date you first took benefits on or after 6 April 2006 and today.

Pensions now in flexi-access drawdown that started in drawdown on or before 5 April 2006 - and were not previously in flexible drawdown 80% of the maximum income you would have been permitted to take under capped drawdown in the year you converted to flexi-access drawdown x25 at the first time you take benefits on or after 6 April 2006. This is then adjusted to take into account any change in the LTA between the date you first took benefits on or after 6 April 2006 and today.
Pensions now in flexi-access drawdown that started in drawdown on or before 5 April 2006 - and were previously in flexible drawdown prior to 27 March 2014 100% of the maximum income you would have been permitted to take under capped drawdown in the year the flexible drawdown declaration was made x25 at the first time you take benefits on or after 6 April 2006. This is then adjusted to take into account any change in the LTA between the date you first took benefits on or after 6 April 2006 and today.

The sum of these pension values can then be compared to the lifetime allowance. If you are near or over the lifetime allowance – usually because the allowance has been reduced - then you may be able to obtain some form of protection. See below for more details.

When is the lifetime allowance used?

Whenever you take benefits from your pension, the value of the benefits that you are taking – whether through payments from a final salary scheme, drawdown, a lump sum or an annuity purchase – is then calculated as a percentage of the lifetime allowance and you will get a certificate showing the percentage of the allowance used. For example if your pension fund is worth £300,000 and you decide to buy an annuity then you will have used 27.95% of the £1,073,100 lifetime allowance. This is not the case if you hold any form of protection – see below.

Your fund value will also be measured against the lifetime allowance if you reach age 75 with benefits that you have not taken or are in drawdown.

If you started taking benefits from your pension prior to 6 April 2006, they will not have been tested against the lifetime allowance at that time. Instead, the level of lifetime allowance you have available will be reduced the first time you take new benefits from 6 April 2006 and onwards. The table above sets out how your benefits will be valued, and there is a case study at the end of this page which demonstrates how the calculation could work in practice.

What are the different forms of protection?

Each time that the Government has reduced the lifetime allowance it has made available new forms of protection for people impacted by the reduction. The last change was made on 6 April 2016 when the lifetime allowance reduced from £1.25m to £1m. If your total pension savings are currently more than £1m or you believe that they may grow to more than £1m you might want to look at whether you are eligible for one of the 2016 forms of protection.

  Fixed protection 2016 Individual protection 2016
Fixed protection 2016

£1.25m

Value of your pension fund at 5 April 2016 subject to a maximum of £1.25m
Tax free cash protection 25% of the fund value up to £1.25m 25% of the fund value up to the protected amount
Conditions No further pension contributions on or new pension arrangements on or after 6 April 2016

No other forms of protection can be held, other than individual protection 2014 and 2016. But you can have both fixed and individual protection for 2016, so if you do lose your fixed protection you can still rely on your individual protection and make further contributions.
Value of pensions at 5 April 2016 must be more than £1m. 
Must not have primary protection or individual protection 2014
Can you continue making contributions? Yes, as long as protection was held before 15 March 2023 Yes
How do you apply? Application is online and you will need to have an HMRC Online Services account. Application is online and you will need to have an HMRC Online Services account.
  Fixed protection 2014 Individual protection 2014
Protected lifetime allowance

£1.5m

Value of your pension fund at 5 April 2014 subject to a maximum of £1.5m
Tax free cash protection 25% of the fund value up to £1.5m 25% of the fund value up to the protected amount
Conditions No further pension contributions or new pension arrangements after 5 April 2014

Fund value at £1.25m or greater at 5 April 2014

Can you continue making contributions? Yes, as long as protection was held before 15 March 2023 Yes
How do you apply? You can no longer apply You can no longer apply
  Fixed protection 2012

Protected lifetime allowance

Higher of £1.8m or standard LTA

Tax free cash protection 25% of the fund value up to £1.8m

Conditions

No further pension contributions or new pension arrangements
Can you continue making contributions? Yes, as long as protection was held before 15 March 2023
How do you apply? You can no longer apply
  Enhanced protection 2006 Primary protection 2006
Protected lifetime allowance Unlimited Primary protection factor shown on your certificate multiplied by the higher of the standard LTA and £1.8m plus £1.8m. If this is exceeded you will be subject to an LTA charge
Tax free cash protection As shown on the protection certificate As shown on the protection certificate
Conditions No further pension contributions or new pension arrangements
Can you continue making contributions? Yes, as long as protection was held before 15 March 2023 Yes
How do you apply? You can no longer apply You can no longer apply

What do I do if I want to take my pension from my SIPP and I have exceeded the lifetime allowance or have a form of protection?

First, you should read our guide to accessing your pension and consider your options and the risks carefully. When you're ready to access your pension, log in to your account online and select 'Access my pension' from the 'My account' menu. As part of the process, you'll be asked to complete the transitional protection and lifetime allowance form.

Case study: John’s pension is valued at more than the current lifetime allowance

John

At 5 April 2016 John had £550,000 in his self-invested personal pension (SIPP) and £650,000 in his employer’s pension scheme, £1.2m in total. He decided to apply for fixed and individual protection 2016.

In 2022, when John is 60, he decides to go into drawdown, take all of his tax free cash and leave the rest in his fund. At this point the lifetime allowance is £1,073,100.

Scenario 1: John’s fund has grown and is now valued at £1.3m. John uses his fixed protection of £1.25m and has an excess of £50,000. He decides to leave this in the fund and does not have anything additional to pay.

Scenario 2: John’s fund has fallen to a value of £1m which is below the £1.2m allowance for his individual protection. John can continue to contribute to his pension after 6 April 2023 as there are no charges coming from the lifetime allowance tests.

Case study: Harriet is accessing a new pension for the first time after 5 April 2006

Harriet

Harriet had a final salary scheme from which she was receiving an annual pension of £20,000 on 5 April 2006.

In 2022, when the standard lifetime allowance is £1,073,100, she decides to take benefits from her SIPP for the first time. The SIPP is valued at £500,000, and at the time her final salary pension in payment is £25,000 annually.

Scenario 1: Harriet’s available lifetime allowance is reduced to reflect the level of the final salary pension in payment at that time. This means a reduction of £625,000 (£25,000 x 25). This represents a 58.24% reduction in her available lifetime allowance.

Scenario 2: When taking benefits from her SIPP, Harriet only has 41.76% of the lifetime allowance available, which is £448,126.56.