Lifetime Allowance (LTA)
What is the LTA?
This is the total value of pension savings which the Revenue will allow you to build up over your entire working lifetime before a tax charge applies.
How much is the LTA?
The LTA for total pension savings is £1.8m, but it will reduce to £1.5m with effect from 6 April 2012. This reduced limit will remain in force at that level until at least 2015/16.
What happens if the total value of my pension savings exceed the LTA?
If the total value of your pension benefits from all sources exceeds the LTA, there will be a tax charge of 55% payable on the excess if benefits are taken as a lump sum, or 25% if the excess benefits are taken as a pension. However, pensions in payment will be taxed under PAYE, making the effective tax charge at least 55% for higher rate tax payers.
When are my pension benefits valued for LTA purposes?
Pension benefits need to be valued at certain times – for PACE members this will usually only be:
- when you start to receive your pension,
- if any lump sum is paid in the event of your death.
There may be other times when your PACE pension benefits will need to be valued for LTA purposes and if this is the case the Group Pensions team will contact you.
