From 6 April 2024, the Government will abolish and replace the Lifetime Allowance (LTA) with two new allowances. Find out more about what the changes mean for you

About this page

This page is designed to help you mange the Lifetime Allowance.

 

 

 Jump to

Current Pension Scheme Rates How to calculate your Lifetime Allowance Find out if a tax charge could apply to you Protecting your Lifetime Allowance Example Lifetime Allowance tax charge

How to calculate your LTA

To calculate your LTA, follow these steps:

  • Step 1: Multiply your annual pension payment by 20
  • Step 2: Add any lump sum entitlement
  • Step 3: Convert the total into a percentage based on the current standard LTA limit

If the final percentage exceeds 100%, your benefits have breached the current standard LTA limit.

So, for a member with a pension of £60,000 pa and a lump sum of £250,000, their LTA value would be 135.12% of the current standard LTA:

(20 x £60,000) + £250,000 = £1,450,000

100 x £1,450,000 / £1,073,100 = 135.12%

When a tax charge could apply

The table below provides examples of when an LTA breach could occur.

The examples are based on the standard LTA.

If you have other pension scheme benefits, the amount of Civil Service pension benefits that could cause you to exceed the LTA would be lower.

Scheme

Benefits at retirement
classic

Pension per annum of £46,656.52
Automatic lump sum of £139,969.56
classic plus Between £46,656.52 and £53,655.00 pension per annum plus any automatic lump sum
premium, nuvos, alpha Pension per annum of £53,655.00 (if taking no lump sum)

 

Protect your pension lifetime allowance

If you retire having breached the LTA, you will receive a tax charge of 25%. We will permanently reduce your pension to pay this tax charge. If you wish, you can ask for your lump sum to be reduced instead.

This tax charge (known as the Recovery charge) is paid to HM Revenue & Customs (HMRC).

Full details of LTA tax charges are covered in HMRC’s Pensions Tax Manual on the GOV.UK website.

HMRC Pensions Tax Manual

Example tax charge

The example below is based on the following scenario.

  • A current standard LTA limit of £1,073,100.
  • The member is aged 60, with a pension of £60,000pa and a lump sum of £250,000.
  • The member has not used up any LTA elsewhere.
  • The available LTA = £1,073,100.
  • The lump sum is deemed to have been paid first.

After the lump sum, the available LTA = £823,100

(£1,073,100 - £250,000)

Maximum pension up to the LTA = £41,155

(£823,100 / 20)

Excess pension = £18,845

(£60,000 - £41,155)

Chargeable amount = £376,900

(£18,845 x 20)

Recovery charge (RC) = £94,225 

(£376,900 x 25%)

Pension equivalent of RC = £4,730.17

(£94,225 / 19.92*)

Residual excess pension = £14,114.83

(£18,845 - £4,730.17)

Full residual pension = £55,269.83

(£41,155 + £14,114.83)

*Actuarial factor based on age

With a recovery charge paid by the scheme of £94,225, the benefits payable would be an annual pension of £55,269.83 and a lump sum of £250,000.

Note that the LTA percentage is based on the value before any reduction for the recovery charge:

  • LTA value: (20 x £60,000) + £250,000 = £1,450,000
  • LTA percentage: 100 x £1,450,000 / £1,073,100 = 135.12%

These benefits represent 135.12% of the standard LTA.

The reduction could be made against the lump sum instead:

LTA value of potential benefits = £1,450,000

([20 x £60,000] + £250,000)

Chargeable amount = £376,900

(£1,450,000 - £1,073,100)

Recovery Charge = £207,295

(£376,900 x 55%)

Lump sum payable = £42,705

(£250,000 - £207,295)

With a recovery charge paid by the scheme of £207,295, the benefits payable would be an annual pension of £60,000 and a lump sum of £42,705.

The LTA percentage would still be 135.12% of the standard LTA.

The actuarial factors for converting the recovery charge into a pension equivalent are available on the dedicated actuarial factors page.

When you retire, we will issue you with a retirement quotation, which will include a Personal Details Form.

Once you have returned this form with details of any other benefits and any LTA protection you may have, we will perform the above calculation and send further options to you.

 

Further support

If you are a Civil Service employer, specialist Lifetime Allowance training is available. 

Employer LTA support

In this section

Published:
7 December 2021
Last updated:
21 February 2024
Share this