The lifetime allowance
The Lifetime Allowance is a limit on the amount of pension savings that can be drawn without having to pay additional tax charges.
The lifetime allowance was introduced in 2006 at a level of £1.5 million. Over the following years it increased until 2010 when it reached £1.8 million. Moving beyond 2010 and as a result of changes to pension legislation the lifetime allowance has been reduced considerably to the 2016/17 tax year where it sits at £1 million.
There are still some transitional reliefs available which could see your own Lifetime Allowance increased further beyond the existing limit.
So why is this important?
Well it is a matter of tax:
Lump sums taken in excess of the Lifetime allowance are charged at 55% and income payments are charged at 25% – Its worth bearing in mind that you will also pay income tax on income payments which will be taxed by HMRC under pay as you earn.
If you have a high level of pension savings then you should be considering the transitional arrangements that may well still be available to you in order to minimise future tax charges.