A few people have emailed me with questions on the pensions lifetime allowance following discussion of this in our self-invested personal pension (Sipp) special issue (IC, 27.05.22). And I'm not surprised that people are confused by the nuances of the lifetime allowance – the rules on this have been tweaked so many times and become so complicated it might just be simpler for the government to rip up the rules and start again!
Some of the key rules relating to the pensions lifetime allowance are as follows. You don't have to pay lifetime allowance charges until you have used up the full £1,073,100 allowance, or a higher amount if you have taken out protection. When you have used up your lifetime allowance, you pay a charge on any further benefits you take. This should be done for you by your pension administrator.
When you reach age of 75, money which is still in your pension – 'uncrystallised assets' – are tested against your remaining lifetime allowance. When the lifetime allowance charge is applied before age 75, you can take the excess as a lump sum and pay a 55 per cent charge, or as income and pay a 25 per cent charge and income tax at your marginal rate. For the test at age 75, you can only select the income option.