Pension Lifetime Allowance in 2020

While the Pension Lifetime Allowance will not be relevant for everyone, for those that it does apply to, it is very important to bear in mind when thinking about your pension pot. 

In this article, we explain exactly what the pension lifetime allowance is in the UK, how it works, what you need to look out for, and what you can do to manage it.

The rules surrounding the lifetime allowance are a fairly complex area of pension legislation, and it’s easy to get overwhelmed with all of the terminology that’s used to discuss this subject. Luckily for you, we have created this simple guide which will help you to make sense of the lifetime allowance.

Your questions about the lifetime allowance answered

In this article, we will cover the following key topics: 

(a)  What the lifetime allowance is – we explain how to know whether this is something that will affect your pension

(b)   How lifetime allowance works – we’ll cover how to calculate how much tax you will pay if your pension savings exceed the lifetime allowance

(c)  How to calculate how your pension pot measures up against the lifetime allowance

(d)  The recent changes in the law which have altered how the pension allowance works – we’ll break down these changes in the law and explain how they might affect you

(e)  How to find out more – at the end of this article, we’ve provided some really useful resources which will provide you with further guidance and advice

1 – What is the lifetime allowance? 

The ‘Lifetime Allowance’ is the maximum amount of money you can accumulate in your pension fund without being subject to tax charges. This applies to both normal retirement and ill-health retirement.  

You are free to make contributions to your pension above the lifetime allowance amount, but you will have to pay tax on the money which exceeds this amount. 

lifetime allowance 2019/20

2 – How much is the lifetime allowance for the year 2019/2020? 

For the tax year 2019/2020, the annual allowance is £1,055,000. It is likely to rise again in the tax year 2020/2021 as it increases in line with inflation. 

3 – When was the lifetime allowance first introduced? 

The law surrounding pensions changed significantly in 2006, and it was at this point that a ‘lifetime allowance’ was introduced. 

4 – Has the lifetime allowance changed? 

The short answer is yes. The lifetime allowance amount rose every year from 2006 to 2012, but then was cut from £1.8m to £1.5m in 2012/13, with further cuts taking place in 2014/15 and 2016/17.  

If you would like to see in more detail the changes which have been made to the lifetime allowance amount since 2006, look at this useful table created by Gov.uk which shows how the lifetime allowance amount has changed over the years.  

5 – Are all types of pensions included in the lifetime allowance calculations? 

Money held in any kind of private pension scheme will count towards the lifetime allowance amount – so that includes both defined contribution schemes and defined benefit schemes

However, your State Benefit does not count towards your lifetime allowance. 

6 –  How is the lifetime allowance charge calculated? 

This depends on the kind of pension scheme you have. 

For personal pension schemes and defined contribution schemes, the amount which will be tested against the lifetime allowance will simply be the amount of money held in that scheme. 

For defined benefit pension schemes, things are a little more complicated. 

If you are part of a defined benefit pension scheme, then your lifetime allowance can be calculated in the following way: 

By multiplying the value of the final salary pension by 20. 

Example 1 

If you are aged 65 and your pension is worth £55,000 per year, the value of your pension will be 55,000 x 20 -> 1,100,000. 

Because the lifetime allowance amount for 2019/20 below this amount (£1,055,000 for 2019/20), then £45,000of your pension fund will be subject to the lifetime allowance charge.  

If money is taken as a lump sum, they will pay tax at a rate of 55%, so they would be charged £24,750 by HMRC. 

If the money is taken as income or via a pension drawdown, then the rate of tax is 25%. In this case, they would be subject to a charge of £11,250.

As you can see, in this case, taking money from the pension by using an income scheme or drawdown, will mean that the individual pays £13,500 less in tax.

You can use a lifetime allowance calculator to do these calculations for you: 

Lifetime Allowance Calculator 1

Lifetime Allowance Calculator 2

lifetime allowance charge

7 – What should I do if I have more than one pension provider?  

If you have more than one pension provider, you’ll need to add up all the money that you have with all of the different pension providers.

The total figure will be the one you need to check against the lifetime allowance limit.  

8 – How much tax will I pay if my pension does exceed the lifetime allowance? 

 This is where things can get a little confusing. The amount of tax you will need to pay on the money which exceeds the lifetime allowance amount depends on how you withdraw money from your pension pot. 

      (Type A) If you take the money out as a lump sum, the rate of tax is 55%.

For every pound over the lifetime allowance withdrawn in this way, you’ll pay 55p in tax. 

      (Type B) If you take the money out in any other way (for example, in the form of pension payments or a drawdown) the rate of tax is 25%

For every pound over the lifetime allowance withdrawn in this way, you’ll pay 25p in tax.

9 – Would I still have to pay income tax on top of this?

This depends on how you take money out of your pension pot.

 If you take money out of your pension as regular retirement income (Type B), then you will have to pay income tax as well as the 25% lifetime allowance tax on any money that exceeds the lifetime allowance cap.  

Scenario A

Simon has an annual income which puts him in the higher tax bracket of 40%. He had planned to take out £1500 a month from his pension pot in the form of income. 

After the 25% tax charge, this will be reduced to £1125. 

On top of this, he will also be required to pay 40% income tax on this amount, meaning that his monthly income will now be reduced to £675. 

In other words, because of the combined effect of the lifetime allowance charge and the income tax, his monthly income has been reduced by 55%. 

If you wish to avoid the lifetime allowance charge, it is important to keep track of the value of your pension and to make changes where necessary to your pension plan.  

For more information about buying lifetime annuities, which has produced a step-by-step guide which you might find useful:  


10 – When will my pension be tested against the lifetime allowance amount by HMRC? 

Generally speaking, HMRC will test the value of your pension(s) against the lifetime allowance amount at any time that you withdraw a benefit from your pension.

It will also be tested against the lifetime allowance amount when you turn 75. 

11 – What is a benefit crystallisation event? 

A benefit crystallisation event, which you will sometimes see abbreviated to ‘BCE’, simply refers to the moment at which HMRC check or ‘test’ your pension fund against the lifetime allowance amount. 

maximum pension pot

12 – What is the lifetime allowance charge at 75? 

When you turn 75, HMRC will automatically check or ‘test’ the amount of money you have in your pension against the lifetime allowance amount. 

For further information about how this works, follow this link: 


13 –  Can I protect my pension from reductions in the lifetime allowance? 

 Yes. If the value of your pension pot exceeded £1 million on 5 April 2016, then there are two schemes you can apply for which will protect you from reductions in the lifetime allowance amount. 

You’ll need to go to this website and follow the steps to apply for protection from the reductions: 


After you’ve done this, you’ll be given two reference numbers which you need to keep hold of: 

  • protection notification number
  • scheme administrator reference

You’ll need to give these reference numbers to your pension provider when you decide to take money from your pension pot, to show that you have lifetime allowance protection. 

 14 – What protection schemes are available and how do I decide between them? 

There are two schemes available which you can apply for to protect your pension from reductions in the lifetime allowance amount. Which one you apply for will depend on the total value of your pension, how much you plan to add to your pension, and what contributions you have made since 2016. 

(a)  Individual Protection 2016 

Under this protection scheme, your lifetime allowance will be equal to the value that your pension pot held on the 5th April 2016. 

Remember that you will only be eligible for this scheme if your pension pot was worth over £1 million on 5th April 2016. 

Your personalised lifetime allowance amount will also not be able to exceed £1.25 million. 

As with the standard lifetime allowance cap, you are still free to make contributions above this amount, but they will be subject to tax charges. 

(b)  Fixed Protection 2016

This will give you a fixed lifetime allowance amount of £1.25 million. 

However, you can only apply for this protection if you have not made any contributions to your pension pot after the 5th April 2016. 

You can read more about how these schemes work here: 


For more information about the protection schemes, see this video from Moore and Smalley:

15 – How can I calculate how much of my Lifetime Allowance I have used? 

This quick lifetime calculator tool will allow you to carry out a quick check and will give you the percentage of the lifetime allowance amount you have used so far.  


However, if your pension funds are more complicated (for example, if you have multiple pension scheme providers), then it might be work booking an appointment with a pension adviser. They will be able to advise you on whether the lifetime allowance cap will affect you, and the taxes you will be able to pay to HMRC if it does affect you. 

16 – Are there going to be any changes to the Pension Lifetime Allowance in the future?

Yes, the lifetime allowance is set by HM Treasury and will rise in line with inflation. Specifically, HM Treasury uses the Consumer Price Index (CPI) to decide how much the lifetime allowance should increase by. 

In addition, future governments might decide to increase or decrease the cap. However, at the moment no indication that this will happen has been given. 

17 – What should I do if I don’t know the value of my pension?  

If you are not sure what the value of your pension is, we would advise that you contact your pension scheme provider(s), who will be able to provide this information for you.   

18 – Where can I find out more? 

Here are some useful resources which will give you more information about the lifetime allowance: 


For more details about how the lifetime allowance works, these useful videos will give you more information. 

      This video from the pension scheme specialists Boolers provides a good overview of the guidelines.

What is the lifetime allowance? – Advice from Boolers

      This video gives more information about what to do if you are considering withdrawing income from your pension fund before you are 75. 


Other resources

      This useful guide from the Money Advice Service, also gives a good explanation of the lifetime allowance. 

 Lifetime allowance for pension savings – Money Advice Service

      Hargreaves Lansdown have created a pension Lifetime Allowance factsheet, which gives detailed information about how the lifetime allowance works. You will have to provide your name and email address in order to be able to access the factsheet:

Hargreaves Lansdown – Lifetime Allowance Factsheet

lta calculation


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