RPSM11100020 - Technical Pages: Lifetime allowance: Basic principles: What is the lifetime allowance?

There is no limit placed on the amount of benefits an individual can build up under a registered pension scheme. However, everyone has a set level of benefits that they can draw from all registered pension schemes in their lifetime, without triggering certain tax charges. And in certain circumstances, the benefits that can be provided from such schemes on the death of a member may also be paid without triggering certain tax charges.

This measure is referred to as a lifetime allowance.

This lifetime allowance is expressed as a capital value and is set at a particular standard level for each tax year. For the 2006/07 tax year this standard lifetime allowance is £1.5 million. RPSM11101010 shows what the figures are for the tax years 2007/08 to 2011/12. From 2012/13 onwards the standard lifetime allowance is reduced to £1.5 million.

In some circumstances an individual’s lifetime allowance will actually be higher than the standard lifetime allowance in any particular tax year (because they are entitled to what is called an enhanced lifetime allowance). An individual’s enhanced lifetime allowance is calculated at any time by multiplying the standard lifetime allowance by a factor (called a lifetime allowance enhancement factor). RPSM11101020 to RPSM11101140 cover this in more detail.

Individuals with enhanced protection are not subject to the lifetime allowance charge. See RPSM03104000.

In addition, from 6 April 2012, an individual may be entitled to a lifetime allowance of £1.8 million although the standard lifetime allowance has been reduced to £1.5 million because they have fixed protection. See RPSM11101500 onwards for more details about fixed protection.

There are also rare circumstances where an individual’s lifetime allowance will be lower than the standard lifetime allowance. RPSM11101150 explains these circumstances.

Individuals may be provided with benefits up to any level under a registered pension scheme. But where benefit entitlements arise in respect of an individual who has used up all their lifetime allowance, there are tax consequences. Essentially, the tax rules limit the level of tax relieved benefits an individual can be provided with from a tax registered pension scheme, but do not restrict the actual level of benefits that may be provided by such a scheme.