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Pension Lifetime Allowance

Term

Maximum you can withdraw from pension plans and schemes, tax-free. Currently the limit is £1,073,100. This excludes state pension but applies to all other pension schemes. It applies to whether it’s withdrawn in instalments or a lump sum.

Benefit Pension: private pension paid after retirement by your employer, based on salary and time you spent at the firm.

If you go over the limit, you’ll have to pay income tax on withdrawals. You’ll have to work out the pension schemes you’re part of, calculate their total value and if it’s over the limit, calculate your income tax burden.

Calculating defined contribution pension: value of retirement pension + lump sum you’re going to receive

Calculating benefit pension: Depends on rule of scheme, based on salary at point of retirement

If you take a lump sum, you’ll owe 55% for the portion over the lifetime allowance. If you take it in instalments, you’ll owe income tax alongside 25% for the portion over the lifetime allowance

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