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Lifetime Allowance
The Standard Lifetime Allowance (LTA) reduced down to £1.0 million from £1.25 million from 6th April 2016. This represented a reduction of £250,000 from the previous LTA of £1.25 million and a reduction of £800,000 from 2012.
The Lifetime Allowance is tested by multiplying the NHS Pension by 20 and adding any lump sum plus the value of any additional private pensions if drawn at the same time.
From 6 April 2018 the lifetime allowance will also be "indexed" annually to protect against inflation. This means it will rise each year in line with the consumer prices index (CPI) rate of inflation.
The government says that over 96% of people currently approaching retirement have a pension pot worth less than £1m, so this change will affect only the wealthiest pension savers.
For those it does affect, and that will be most senior Healthcare Professionals, transitional protection will be made available for pensions already over £1m alongside the reduction to ensure the change is not retrospective.
The LTA is the total amount of tax privileged pension savings that you are allowed to accumulate within registered pension schemes. Once benefits are taken that exceed the LTA then a tax charge is levied. The tax charge is 55% if the excess if taken as an immediate lump sum. If the excess pension savings are used to provide pension income then the tax charge is reduced to 25%, although it should be borne in mind that the pension income will then be subject to tax at your marginal rate.
If personal pensions are accessed after you have used up the annual allowance from your NHS pension, currently the tax charge is 55% on all funds withdrawn.
We can help you understand your options and protections available