THE PENSIONS LIFETIME ALLOWANCE (LTA) is a limit on the total value of qualifying pension benefits for tax relief that you can build up, without becoming subject to a tax charge on the value of the benefits. The cut, which will save the Treasury around £600 million a year, is expected to affect fewer than 4% of pension savers approaching retirement.
However, the LTA will be index-linked from 2018 to protect it from inflation. Whilst only a relatively small number of individuals may be subject to the LTA, if applicable to your situation, you should obtain professional advice if the value of your pension benefits are approaching, or are above, the LTA, especially with the announcement of the reduction to £1m. As pension provision is typically invested over the long term, it is quite possible that your pension pots could eventually exceed the LTA by the time you reach retirement.
Currently, savings of up to £40,000 a year qualify for tax relief, but there is an upper limit of £1.25m over the lifetime of a pension pot, following which a tax charge of 55% applies. The limit has been cut several times since its introduction in 2006, falling from £1.5m in April last year, following a reduction from £1.8m in 2011.