Lifetime pension allowance (LTA)
Thinking of life after retirement should be an exciting time.
But knowing what to do with your pension savings, as well as navigating the various rules and regulations that come into play regarding your hard-earned funds, can be confusing – especially if you have started your new chapter abroad.
When it comes to your retirement fund, a key factor that’ll impact your savings is the Lifetime Pension Allowance (LTA).
In this guide, we’ll cover what exactly the lifetime pension allowance is, the charges it brings, and how expats can protect themselves against paying more than they have to – or even mitigate the Lifetime Allowance Tax Charge completely.
For those living abroad, you could potentially increase the value of an existing pension fund, without finding yourself subject to additional tax charges.
So, let’s get into it.
What is the lifetime
pension allowance?
Your lifetime pension allowance is the maximum amount that you can save in your UK pension before facing an extra tax charge. In other words, there is a limit on the total of tax-relieved monies you can have accumulating in your pot over time.
Now this limit is important, and potentially costly if you run over.
If your total pension benefits are taken above the lifetime allowance, you could face a hefty tax charge of 25% or even 55% on higher pension amounts – without immediately realising it.
As such, it’s an effective way for HMRC to continually generate tax revenue, as all UK-based pensions come within its reach.
What is the lifetime allowance limit for pensions - and how does it apply to me?
For most people, the standard lifetime pension allowance is £1,073,100 as of the tax year 2021/22.
This amount has been frozen as far as 2025/2026, so anyone thinking of retirement within the next few years should not expect any further fluctuations.
If you have multiple pension pots accrued through various providers or personal pensions, then the lifetime allowance charge applies to the total accrued amount in all pension schemes.
This includes any defined benefit schemes or savings collated from defined contribution pensions.
I've retired abroad - how could I mitigate additional charges?
If you’re enjoying your retirement abroad, you can transfer your existing pension from a UK registered scheme to a QROPS (a qualifying recognised overseas pension scheme).
Transferring to a QROPS is one of the ways you could reduce these charges – but it’s crucial that you do this before you breach the allowance limit.
The act of moving your pension arrangements to a QROPS will alert HMRC and prompt them to test the value, but the overall move is classified as a ‘Benefit Crystallisation Event’.
You ‘crystallise’ your benefits when removing income from your overall pension amount or plan on taking out a pension commencement lump sum, but it’s important to note that any value above the lifetime allowance threshold could still receive a 25% charge.
What are the benefits of using a QROPS?
If you have a large pension pot and are looking to conserve as much of that value as possible, transferring to a QROPS is one of the ways you can avoid lifetime allowance tax charges on this amount.
This is if your outstanding investment funds are under the current allowance limit of £1,073,100, which is the established threshold as of the 2020/21 tax year.
This means that retirees who are enjoying themselves overseas could save tax in the long run by transferring their pension pot into a QROPS, prompting benefit crystallisation events.
In all, you can potentially expect that there will be less chance of being caught out by a lifetime allowance tax charge, especially on the future value of a pension fund.
How do I get a QROPS to assist with my Lifetime Pension Allowance?
If you believe an overseas transfer to a QROPS would work well for your long-term goals and retirement abroad, we can create a bespoke pension arrangement for you.
Brite industry-leading team can source the best solutions for you, your money and your peace of mind, working alongside fantastic scheme administrators and a cutting-edge Brite Platform that makes investing easy.
Want to get the most out of your next chapter? Get in touch with the Brite team for a simple, straightforward chat with one of our friendly advisors.
What do I need to remember when applying for a QROPS?
If you are currently residing abroad in Europe, it is crucial that your QROPS is regulated within the EEA (European Economic Area) – or you could still get stuck paying 25% thanks to the UK’s ‘overseas transfer charge’.
For those retiring in other areas, such as Australia, your transfer could still be liable for this charge unless your chosen QROPS is situated in the place where you reside.
How to protect your lifetime allowance: individual protection 2016 vs fixed protection 2016
o avoid being snagged by lifetime allowance tax rules, two kinds of protection are available through the UK government.
Tax is still made payable at 55% for lump sum values and 25% for benefits drawn as part of a regular income stream, but there are ways to mitigate this by applying for one of the following:
- Individual Protection 2016
- Fixed Protection 2016
The main difference between the two is that, with Individual Protection, the individual can still be an active member of a pension scheme, whereas Fixed Protection requires contributions to have stopped (or benefits accrued) as from 6 April 2016.
So it goes, Individual Protection guards your lifetime pension allowance “to the lower of £1.25 million and the value of your pension savings at 5th April 2016”.
How do I apply for lifetime pension allowance protection?
To arrange for Lifetime Pension Allowance Protection, you’ll have to use the government’s dedicated portal.
It is important to note that each type of protection has different qualifying criteria, so make sure to check that you are eligible by using the following guidelines.
Individual protection 2016
For Individual Protection, you are able to apply if your pension pot was worth more than £1 million as of the 5th of April 2016. Unlike Fixed Protection, you can put your pension forward if you have previously enjoyed or still have protections in place, such as:
Using Brite to help you get the most out of your pension
Our knowledgeable team knows how important pensions are when it comes to your retirement and getting the most out of your life’s earnings.
That’s why we offer our clients a truly unbeatable all-in-one pension solution service that bridges advisory and pension administration, trusted asset handling and easy, secure transfers that span the globe.
First started in 2016, we facilitate top-level solutions at a reduced cost, giving you unbeatable options that won’t break the bank.
We do all of this without meddlesome middlemen and interfering third-parties trying to upsell – giving you straightforward advice that is truly in your best interests.
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