The Government recently announced changes to the Lifetime Allowance charge in the Spring Budget 2023. Find out more about the changes.   

About this page

This page is designed to help you to manage the lifetime allowance and help you to protect your pensions from being affected by this allowance.

 

 

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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 following examples are based on the current Standard Lifetime Allowance and Civil Service pension benefits only.

If you have other pension scheme benefits in addition to your Civil Service pension, the amounts shown below may 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)

 

About Lifetime Allowance tax charges

If you retire having breached the LTA, you will receive a 25% tax charge and your pension will be reduced. This reduction in is a one-off and permanent reduction.

We will pay the tax charge due (the “Recovery charge” to HMRC (HM Revenue and Customs).

If you wish, you can request for your lump sum to be reduced instead, which incurs a one-off 55%

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.

 

Lifetime Allowance Protections

You may be able to protect your pension savings from the 6 April 2016 reduction of the Standard Lifetime Allowance when it was reduced to £1 million.

There are 2 protections you can apply for.

You can find out more information on the Protect Your Pension Lifetime Allowance page on the GOV.UK website.

LTA protection

Further support

If you are a Civil Service employer, specialist  training support can be provided Allowance and Lifetime Allowance. Click below to find out more. 

Employer LTA support

In this section

Published:
7 December 2021
Last updated:
19 April 2023
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