The Lifetime Allowance - Sainsburys Pensions

LTA
The Lifetime Allowance (LTA) is a limit set by the Government on the
value of total retirement saving that you can have before you have to
pay a special tax charge.
From 6 April 2012, the Lifetime Allowance
changed to £1.5 million. From 6 April 2014,
it will reduce to £1.25 million.
If you are in a defined contribution scheme
(for example, the Sainsbury’s Retirement
Savings Plan or SIPP) or have Additional
Voluntary Contributions (AVCs) or Free Standing
Additional Voluntary Contributions (FSAVCs) the
value for the Lifetime Allowance is the value of
all your funds combined.
If you also have benefits in a defined benefit
scheme (for example a Final Salary or Career
Average scheme) and you want to measure
your benefits against the Lifetime Allowance
you have to multiply your pension by 20.
For example, a pension of £40,000 a year x 20
= £800,000.
If the value of all your pensions together is less
than the Lifetime Allowance you will not have to
pay a special tax charge.

Here is an example of how to value your total pension benefits:
• Mr A wishes to take his pension from May 2012. He has a defined
benefit scheme pension of £90,000 a year and a fund value of
£200,000 from a defined contribution scheme
• Mr A multiplies his defined benefit scheme pension by 20 and
adds his defined contribution scheme fund value to get a value
for the Lifetime Allowance; £80,000 x 20 = £1.6 million
£1.6 million + £200,000 = £1.8 million
• £1.8 million - £1.5 million = £300,000. This amount is subject to
the special tax charge
• Mr A has the option to take the £300,000 as either a cash lump sum or as pension.
Cash
• If Mr A decides to take the £300,000 as a lump sum,
there is a one-off tax charge of 55%
• £300,000 x 55% = £165,000 tax charge
Pension
• If Mr A chooses to take the £300,000 as a pension,
then the immediate tax charge is 25%
• £300,000 x 25% = £75,000
• £300,000 - £75,000 = £225,000
• The amount left must be used to provide an income
which will be taxed
Until 6 April 2009, it was possible to protect yourself against the tax charge above
if you had, or were likely to have, retirement benefits valued above the Lifetime
Allowance. If you have this protection you will have applied for and received a
Protection Certificate from HMRC. Please also let the Pensions Department know.
This calculation is a summary of the main features of the Lifetime Allowance
calculation and is intended to provide an indication of whether you are likely to
be impacted.
If you have calculated the total value of all of your pensions and it is near £1.5 million,
you should contact the Pensions Department.
The Pensions Department is unable to give you advice but can give you information on
protecting your pension.