Lifetime Allowance

LTA

The LTA is the maximum amount of pension savings an individual can build up over their life that benefits from tax relief.  The LTA value of your retirement benefits is calculated as a capital value, i.e. pension x by 20 plus your tax-free lump sum. 

For example, if you have a pension of £66,000 pa and a tax-free lump sum of £198,000, the LTA value of your benefits will be a £1,518,000 (i.e. £66,000 x 20 + £198,000).  If the pension benefits at retirement exceed the LTA, a tax charge will arise on the excess.   

Maximum tax-free cash

As well as the LTA limit, there is also a limit on the amount of tax-free cash you can receive upon retirement.  This is restricted to 25% of the value of your total benefits at retirement (or 25% of the LTA if this is lower, e.g. £312,500 limit if the LTA is £1.25M).