Pensions Simplification
The
lifetime allowance
The
lifetime allowance for tax-privileged pension savings is £1.5m for the 2005/6 tax year rising to £1.8m by 2010/11 then to be reviewed. Pension funds will be tested against the lifetime allowance
when benefits are taken through a benefit crystallisation event.
A factor of 20:1 will be used to
value Defined Benefit scheme based benefits.
The
lifetime allowance charge or recovery charge
There
will be a lifetime allowance charge on pension funds in excess of the lifetime
allowance at the time that the pension vests. The lifetime allowance
charge will be 25% of the excess funds where benefit is taken in the form of income.
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 instead of in the form of income. The rate of tax will then be 55% on the excess fund over the lifetime allowance then applicable.
For those with large funds at 5 April 2006, they may register for one or both of two forms of protection.
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