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The Lifetime Allowance (LTA) is a limit on the amount which can be taken from your pension schemes either as a lump sums or retirement income – without leading to an extra tax charge.
The LTA was introduced in 2006 as part of a collection of UK pension reforms.
The LTA for the 2020/21 tax year is £1,073,100 & is likely to rise in line with inflation at the end of the current tax year.
While the majority of people in the UK are not affected by the LTA, it is important that you take action if the total value of your pension benefits is near, or higher than the LTA. Pensions are a long term commitment, and whilst contributions may appear modest now, they could exceed the LTA by the time you reach the age in which you can access your benefits.
READ MORE: Inheritance Tax: Are overseas Brit’s exempt?
In some cases, you may need to stop contributing to the scheme/plan to avoid your benefits exceeding the lifetime allowance. The LTA test is done each time you access a pension benefit. If you would like to learn more about your pension and the options available to you, please click on this link to be put in touch with a UK pensions specialist.