There is no limit on the value of the pension savings you can build but if they exceed the ‘lifetime allowance’ when they are taken the difference will be taxed.
The lifetime allowance for pensions is currently set at £1,076,100 for the 20/21 tax year. This will increase in line with the Consumer Price Index (CPI) annually.
The lifetime allowance charge will only apply to you if your pension benefits are in excess of that figure when you begin to take your pension. If this happens, the lifetime allowance charge will apply to you in one of two ways or a combination of both, depending on how you choose to take the excess benefits.
The charge for any amount over the lifetime limit is:
- 25% on any income taken as a regular payment
- 55% on anything you take as a lump sum