Follow Us

7 Turbetts Close, Poole, Dorset, BH16 6HF

01202 282056
nick@fivefinancial.co.uk

Book a Free Review
Nicholas Jowett • Jun 29, 2022

Lifetime Allowance?

When does it apply?


There’s no limit on how much you build up in pension benefits. But checks are carried out at certain times to see if the value of your pension benefits exceeds the lifetime allowance.


If you’ve built up more than the value of the lifetime allowance when a check is carried out, you might have to pay a tax charge.

Checks are typically carried out:


  • when you start drawing a defined benefit pension
  • when you take an income or lump sum from a defined contribution pension (see examples below)
  • if you transfer a pension overseas before age 75
  • if you reach your 75th birthday and have a pension in drawdown or that you haven’t touched 
  • if you die before age 75 and have pensions you haven’t touched.


After age 75, there are generally no further checks against the lifetime allowance. 


Working out if this applies to you



Every time you start taking a pension from one of your schemes, its value is compared against your remaining lifetime allowance to see if there’s extra tax to pay.

You can work out whether you’re likely to be affected by adding up the expected value of your pensions to see if they might go over the lifetime allowance.

Be aware, though, that what matters is the value of your pensions at the point the checks are done. So you might need to take into account how the value of your pensions might change between now and the time you expect a check to be done.

For example, if you’re 55 now, but don’t expect to begin taking any money out until you’re 60, you need to consider if the value of your pensions might increase between now and then. If it does, this will use up more of the lifetime allowance available to you.

You can work out the value of pensions differently depending on the type of scheme you’re in:


Pensions already paying out to you.


  • If you have taken any pension benefits before 6 April 2006, these will need to be considered the first time a check is made against the lifetime allowance after 6 April 2006. This will reduce your available lifetime allowance. For defined benefit schemes, you normally calculate the total value by multiplying your annual pension (at the time of the check) by 25. 
  • If you have money in capped pension drawdown, it is 80% of 25 times your current annual drawdown limit.
  • If you have more than one pension, you will use up lifetime allowance in the order you take them. The lifetime allowance you’ll need to use in the calculation is the allowance in the tax year in which you take the pension income or the lump sum.
  • Certain tax-free lump-sum benefits paid out to your survivors if you die before age 75 also use up your lifetime allowance.
  • Whenever you start taking money from your pension, a statement from your scheme should tell you how much of your lifetime allowance you’re using up.







Lifetime Allowance abolished

By Nicholas Jowett • 16 Mar, 2023
lifetime allowance abolished

Diversification?

By Nicholas Jowett • 24 Jul, 2022
When it comes to investing using a Financial Adviser can help you maximise your returns and take the correct amount of risk. Here are the top 5 reasons you should Diversify your investments. #1 Reduces the impact of market volatility A diversified portfolio minimises the overall risk associated with the portfolio. Since investment is made across different asset classes and sectors, the overall impact of market volatility comes down. Owning investments across different funds ensures that industry-specific and enterprise-specific risks are low. Thus, it reduces risks and generates higher returns in the long run. #2 Reduces the time spent in monitoring the portfolio A diversified portfolio is more stable because not all investments will perform badly at the same time. If you have invested only in equity shares, you will be spending a lot of time studying the market movement and analyzing your next step. Similarly, if you have invested solely into low-risk mutual funds, your all-time worry will be to find avenues to increase returns. With diversification, you will have to spend lesser time on the same and the portfolio will not require a lot of maintenance. #3 Helps seek advantage of different investment instruments By selecting different funds in different geographical locations, investors gain the benefit of not having all your eggs in one basket. By investing in fixed deposits, investors benefit from a fixed return and a low risk. Hence, diversification of the portfolio will balance the risk and return associated with different funds. Even if one fund does not perform well, the loss may be compensated by the profits made from other funds. #4 Helps achieve long-term investment plans It is important for the investor to invest indifferent high-performing sectors. If the market volatility has a positive impact on stocks, the investor will be able to generate higher returns on them. #5 Helps keep the capital safe Not every investor is ready to play a risky game. Investors who are on the verge of retirement or have just started investing prefer stability in their portfolio and diversification ensures the protection of their savings. Diversification allows investors to achieve their goals while maintaining the investment risk at a minimum. It is also a method of playing safe in the volatile market.

Pension Tax Relief?

By Nicholas Jowett • 29 Jun, 2022
What is pension tax relief? One of the best features of using a pension to save for retirement is tax relief. When you pay into your pension, some of the money that would have gone to the government as tax goes towards your pension instead. This can help reduce the amount of tax you pay and be used to help boost your savings for the future. This ‘tax relief’ is given based on the rate of income tax that you pay. However, depending on how your pension scheme works, if you don’t pay tax you might not get tax relief. Equally, you might have to claim extra tax relief not claimed by your scheme. In addition, there are certain limits that you need to be aware of which can impact the amount of tax relief you're entitled to. Exceed these limits and you may have to pay a tax charge which effectively claws back any excess tax relief given.
Share by: