You can save as much as you like into a pension, but there is a limit on the amount of tax relief you’re allowed. The Lifetime Allowance for pensions is currently £1.25m (2014/15). In essence, the Lifetime Allowance is intended to cap the level of tax-advantaged pension funds that an individual can accumulate within their lifetime. You usually pay tax on any private pension savings above the lifetime allowance.

You’ll get a statement from your pension provider telling you how much tax you owe if you go above your lifetime allowance. Your pension provider will deduct the tax before you start getting your pension. You still need to report the tax deducted by filling in a Self Assessment tax return – you’ll need form SA101 if you’re using paper forms.

Rate of tax
The rate of tax you pay on pension savings above your Lifetime Allowance depends on how the money is paid to you – the rate is:

– 25% if you get it as a regular payment (‘annuity’)
– 55% if you get it as a lump sum

If you die before taking your pension,  HM Revenue & Customs bills the person who receives your pension for tax you owe on pension savings above your Lifetime Allowance.

If you have Lifetime Allowance protection
Lifetime Allowance protection increases your Lifetime Allowance. Check your protection certificate to work out your Lifetime Allowance if you have:

– primary protection
– enhanced protection
– fixed protection
– fixed protection 2014
– individual protection 2014

You’ll lose enhanced protection, fixed protection or fixed protection 2014 if you don’t opt out within a month of
being automatically enrolled in a workplace pension.

You may also lose enhanced protection, fixed protection or fixed protection 2014 if you:

– make new savings in a pension scheme
– consolidate pension scheme money

You may be able to apply for individual protection 2014 if your pension savings were above £1.25 million on 5 April 2014.

If you have the right to take your pension before 50
You may have a reduced Lifetime Allowance if you have the right to take your pension before you’re 50 under a pension scheme you joined before 2006. This only applies to people in certain jobs (e.g. professional sports, dance and modelling) who start taking their pension before they’re 55.

Your Lifetime Allowance isn’t reduced if you’re in a pension scheme for uniformed services (e.g. the armed forces, police and fire services).