The Standard Lifetime Allowance is reducing to £1 Million from 6 April 2016
In the Summer Budget 2015 the Chancellor announced a reduction in the standard lifetime allowance from £1.25 million to £1 million from 6 April 2016, remaining at this level for tax years 2016/17 and 2017/18. From 6 April 2018 the standard lifetime allowance will be indexed annually in line with the Consumer Prices Index (CPI).
£1 million + CPI
The capital value of benefits being measured for lifetime allowance purposes is calculated as 20 x the pension plus the amount of any lump sum being paid.
A standard lifetime allowance of £1 million will affect members who take their benefits when they:
retire with a payable date on or after 6 April 2016 and the date benefits are authorised is on or before 5 April 2016; or
retire with a payable date before 6 April 2016 and the date benefits are authorised is on or after 6 April 2016.
Therefore any delay in claiming benefits may result in these and any subsequent benefits having:
a bigger percentage of the lifetime allowance being used up as these and any subsequent benefits taken will be valued against the lower standard lifetime allowance of £1m; or
a lifetime allowance charge or increased lifetime allowance charge.
Calculation of the reduction in benefits on account of the LTA charge
Members who have a capital value of benefits in excess of £1 million will be subject to a lifetime allowance charge unless they hold a HMRC lifetime allowance protection certificate that has a value equal or more to the benefits that are being taken.
The lifetime allowance charge is:
55% if the excess is taken as a lump sum, and
25% where it is taken as a taxable pension income. The reduction in pension on account of a lifetime allowance charge will affect any future entitlement to a surviving adult pension, but not a child’s pension.
The lifetime allowance charge is paid by the scheme administrator and benefits are permanently reduced to recoup the charge. The factors that are applied to calculate the reduction in benefits have been supplied by the scheme actuary and these are age related; there are separate factors for members retiring on the grounds of ill-health and those who retire on any other grounds.