Protect your lifetime allowance
The Lifetime Allowance (LA) is the maximum total value you are permitted in all tax-advantaged pension schemes, without incurring penal tax charges when accessing benefits. For a ‘money purchase’ scheme (e.g. a personal pension) the LA is compared to the fund value when first accessing benefits, but for a defined benefit (e.g. final salary) scheme the calculation of effective value is more complicated.
The LA is now set at £1m; for the two years prior to 6 April 2016 it was £1.25m. There is a 55% tax charge on any excess value taken as a lump sum, or a 25% charge if the excess is used to produce income (which itself will be taxable).
Two forms of transitional protection can be claimed by those saving towards the higher limit, but they have different conditions. For example, Fixed Protection 2016 does not allow any further pension inputs, including by an employer.
We can discuss the tax effects of these important issues with you, but advice from a qualified pensions advisor should be taken before making any claim.