Your lifetime allowance is the maximum amount you can receive across your lifetime from all Pension arrangements before you incur a tax charge.
From 6 April 2016 the lifetime allowance is £1 million and is indexed in line with inflation (CPI) from 2018.
Finding out how much of the lifetime allowance you’ve used up
Your pension statement shows the value of the benefits you have in the Telefónica UK Pension Plan as a % of the lifetime allowance.
You can access your pension statement at any point from Telefónica Rewards.
How can I calculate my lifetime allowance?
For Defined Benefit (DB) members it's your Pension at retirement x 20 plus any lump sums.
For Defined Contribution (DC) members it's your fund value at the date of when your benefits are taken which includes any Additional Voluntary Contributions (AVCs) and any personal Pensions.
Exceeding the lifetime allowance
Under the Telefónica UK Pension Plan you will not be prevented from exceeding the lifetime allowance, however you may wish to carefully consider carefully whether you wish to make savings that do not enjoy the same tax-privileged status as your savings within the lifetime allowance. When your fund is used to generate Pension benefits it will be subject to tax. Benefits deriving from a fund in excess of the lifetime allowance are taxed at a higher rate than those below it (see table below).
|Fund below the lifetime allowance||May take 25% of fund as tax-free cash (see cash allowance)||Pension taxed as income at your marginal rate of income tax|
|Fund above the lifetime allowance||No tax-free cash allowed to be taken from the fund above the lifetime allowance. If a lump sum is taken as cash this is taxed at 55%||Pension taxed as above plus an additional 25%|
If you have benefits that are close to or exceed the lifetime allowance, consider taking financial advice to ensure that you are saving in the most efficient way for you. Help on finding a financial adviser can be found here.
Are there any protections I can take?
Yes, from July 2016 there are two new protections available:
|Fixed Protection 2016 (FP16)||Individual Protection 2016 (IP16)|
|Who can apply?||No minimum Lifetime Allowance value||Minimum Lifetime Allowance value £1m on 5 April 2016|
|Impact on Lifetime Allowance||Fixed at £1.25m. Excess benefits subject to Lifetime Allowance Tax Charge||Individual Lifetime Allowance of value on 5 April 2016 up to £1.25m. Excess benefits subject to Lifetime Allowance Tax Charge|
|Restrictions||No further contributions to a Pension Plan can be made after 5 April 2016 otherwise FP16 is lost||None - members can continue building up benefits|
|Application||No deadline but need certificate from HMRC before benefits are drawn|
It may be worth you contacting a financial advisor to understand the full list of protection available at your specific point in time.
If you would like to view more information on the various government protections or you would like to calculate your annual tax allowance you can click here to find out more.
To view our previous slides and presentation on the April 2016 budget changes please click here.