The lifetime allowance
The lifetime allowance for tax-privileged pension savings is to be £1.5m rising to £1.8m by 2000 and then, then to be reviewed every five years and generally in line with price inflation. Pension funds will be tested against the lifetime allowance when benefits are taken. A factor of 20:1 will be used to value DB scheme based benefits.
The lifetime allowance charge or recovery charge
There will be a recovery charge on pension funds over the lifetime allowance at the time that the pension vests. The recovery charge will be 25% of the excess funds. A member with a fund in excess of the lifetime allowance may, when vesting the benefits, take funds in excess of the lifetime allowance as a lump sum. The rate of tax will then be 55 %.