Lifetime allowance is the total benefits you can build up from all registered pension schemes without incurring a tax charge
All pension benefits you build up use a percentage of your lifetime allowance. This includes pensions outside the NHS Pension Scheme (apart from the State Pension).
The lifetime allowance is currently £1.055 million.
This has changed over time. You can view the lifetime allowance by year (Excel: 10KB).
Risk of charge at retirement
The value of your pension benefits that exceed the lifetime allowance are subject to a tax charge. This comes into effect when you take your benefits.
If you have long membership and high earnings, you may be at risk of the charge at retirement.
Working out the capital value of your pension benefits
To find out if the capital value of your pension benefits might exceed the lifetime allowance, you need to add both of these together:
- capital value of your NHS pension benefits
- value of all your other pension benefits
Follow this simple calculation to work out the capital value of your NHS pension benefits to be paid:
Capital value = (annual pension amount x 20) + lump sum
Lifetime allowance charge
The charge is a form of tax for which both you and the scheme administrator are jointly liable.
The rate of tax charged will depend on whether you take any benefits that exceed the Lifetime allowance as a pension or a lump sum.
The lifetime allowance charge is:
- 55% if you are taking the excess as a lump sum
- 25% of the capital value where you take it as a taxable pension income
NHS Pensions pays your lifetime allowance charge to HMRC. We recover the cost by permanently reducing your NHS pension benefits.
The calculation used for the recovery charge from your pension reflects life expectancy.
Our lifetime allowance charge examples (PDF: 276KB) show how we deduct the charge.
Effects of charge on dependent’s pensions
A children’s pension is never reduced.
We may reduce an adult dependent’s pension. This will depend on the value of the pension being paid.
Confirmation will be provided at the time of payment.
There are different HMRC protections available to members who could exceed lifetime allowance.
If you’re joining or rejoining the scheme because of auto enrolment, read the effect on Enhanced or Fixed Protection (PDF: 168KB).
Previous HMRC protection arrangements
There are several protection arrangements where the deadline for applying has now passed.
Individual Protection 2014
Individual Protection 2016
Individual Protection 2016 factsheet (PDF: 89KB)Individual Protection 2016 valuation request form (Officer) (Word: 109KB)Individual Protection 2016 valuation request form (Practitioner) (Word: 94.5KB)Cash Equivalent Transfer Value (CETV) (FA11a) form
Fixed Protection 2016
If you think lifetime allowance may affect you, we recommend getting independent financial advice.
Under the Financial Services and Markets Act of 2000, all financial advisers have to decide whether to be ‘independent’ or ‘restricted’.
A financial adviser who is ‘independent’ can offer a range of financial services and products from across the entire market, whereas a financial adviser who is ‘restricted’ can only offer the products from one or a series of companies.
Before you ask for advice, make sure you know which type of adviser you are dealing with. Most financial advisers will charge for their advice.