KNOWLEDGE CENTRE

Lifetime Allowance

What is it?

The Lifetime Allowance is a limit on the value of benefits from your pension schemes – whether lump sums or retirement income – that can be paid out without triggering an extra tax charge. This page explains the rules, which may not necessarily affect you now but may impact you when you come to retire.

How much is the Lifetime Allowance?

The Lifetime Allowance for most people is £1,030,000 for the 2018-19 tax year. It applies to the total of all the pensions you have, including the value of pensions promised through any defined benefit schemes you belong to, like the KPS-FS, but excluding your State Pension.

Why does it exist?

In essence, the Lifetime Allowance is intended to cap the level of tax advantaged pension funds that an individual can accumulate within their lifetime. So a tax charge is imposed on benefits built up in excess of the Lifetime Allowance.

How do I calculate my Lifetime Allowance?

You need to calculate the capital value of your benefits to obtain your position against the Lifetime Allowance.

There are different ways to calculate the capital value of your pension benefits depending on the source:

  • Defined benefit (like the KPS-FS) benefits are given a capital value by multiplying the annual pension by 20
  • The capital value of defined contribution (like the KPS-MP) benefits is the total fund value
  • The capital value of a cash sum payable after 6 April 2006 is the value of the cash payable
  • Pensions in payment before 6 April 2006 are given a capital value by multiplying the annual pension by 25

Once you have obtained the capital value of your pension benefits from all pension arrangements (excluding your State Pension), it is simply a matter of checking whether your benefits are likely to be valued in excess of Lifetime Allowance by the time you take your benefits.

To calculate this, you will need to take into account the likely fund growth and future level of pension contributions. A good financial planner can do this on your behalf.

The Annual Benefit Statement that we send you provides an estimate of what we believe your KPS benefits will be against the Lifetime Allowance at various retirement ages. However, please note that these estimates are based on assumptions provided by the Scheme’s Actuaries. A financial planner may have their own assumptions and may therefore provide you with different estimates.

When the Lifetime Allowance was introduced, and each time it was reduced, it was possible to apply for protection against a potential Lifetime Allowance charge. If you have applied for this, you will have received a certificate from HM Revenue & Customs (HMRC). Please note, if you have what is known as enhanced or primary protection you will have only one certificate.

You will similarly have the opportunity to apply for protection before the change this year.

There are various types of protection which have been made available in the past or are/will be available to you.

These are as follows:

  • Primary Protection You will have had to apply for this before 6 April 2009
  • Enhanced Protection You will have had to apply for this before 6 April 2009
  • Fixed Protection You will have had to apply for this before 6 April 2012
  • Fixed Protection 2014 You will have had to apply for this before 6 April 2014
  • Individual Protection 2014 You are now able to apply for this and you have until April 2017
  • Fixed Protection 2016 This will be available from April 2016 and there will no time limit
  • Individual Protection 2016 This will be available from April 2016 and there will no time limit

Further information regarding the Lifetime Allowance and the respective charges can be found here

We have also created a series of Question & Answer documents which can be accessed via the menu on the right.

You may inadvertently breach the Lifetime Allowance sometime in the future and this could result in you paying a tax charge of up to 55% on any excess above the Lifetime Allowance if taken as a lump sum.

Please note that whilst the Kingfisher Group Pensions Department can give you factual information in relation to the Lifetime Allowance and your benefits in the Kingfisher Pension Scheme only, we are unable to advise you on suitable course of action or type of protection that may be appropriate. If you believe that you will be affected by this issue we would strongly urge you to seek independent advice.

Please therefore ensure you have reviewed your current pension arrangements so you do not unintentionally breach the Lifetime Allowance.