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Is existing pension safe from lifetime allowance?

Retirement | Pension Rules Helpful? 2

Asked by webwiz, submitted 05 February 2012.

Open Quote I retired in 1996 and have drawn a final salary pension and also an annuity bought with AVCs since then. Both have annual increments of about 3%. I also qualified for a modest Norwegian State pension in 2008.

Several years ago I was vaguely aware of the changes to the pension rules and the introduction of the Lifetime Allowance but took little notice as I thought that they would not apply to me as I had already retired and had no further occupational pensions not already in payment.

Suddenly the administrators of the scheme have written to me asking for details which they say they are obliged to collect to see if I have exceeded the Lifetime Allowance. My current pension multiplied by 25 would exceed the current Lifetime Allowance and would be far greater than the reduced lifetime Allowance due next year. Am I really at risk of being taxed on the excess?
End Quote

Answered by Justin on 07 September 2012

From what you've said I think you're safe.

The lifetime allowance applies to pension benefits taken after 5 April 2006. The key here is taking benefits, i.e. commencing an income from a final salary pension or buying an annuity/opting for drawdown on a money purchase style pension.

If you've taken benefits from a pension since 6 April 2006 then you would be assessed against the lifetime allowance, including any existing pensions already in payment (although it was possible to protect some pensions by notifying HMRC by April 2009). But if you were already taking benefits from your pension(s) before 6 April 2006 and have no other pensions from which you have taken (or will take) benefits from that date, excluding the state pension, then the lifetime allowance shouldn't affect you.

It might be your pension administrator is on a form filing exercise or has made a mistake. Either way, I'd ask what's triggered them to ask for the information now.

Please note this answer does not constitute a recommendation or financial advice and should not be relied upon when making specific investment or other financial decisions. You should always undertake your own research into whether a product or service is appropriate for your needs and, if necessary, use a qualified professional adviser.

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