How is the Lifetime Allowance calculated?
When somebody draws benefits from a UK pension a percentage of the current Lifetime Allowance is used. This process is called a Benefit Crystallisation Event (BCE).
As an example, if you have a pension fund worth £250,000 and you access it all between now and March 2016 you will use up 20% of your lifetime allowance.
Whenever you draw a pension it counts against your personal allowance and you will obtain a certificate showing how much of this has been used each time.
If you have Fixed or Individual Protection, the situation is slightly different. If you do not have Fixed of Individual Protection then accessing more than 100% of the Lifetime Allowance will result in charges to tax.
The percentage of your Lifetime Allowance is used against any future Lifetime Allowance calculations. (E.g. A fund of £250,000 is 20% of this year’s lifetime allowance and would represent 20% of future Lifetime Allowance. If you delay taking the fund until 6th April 2016 then it will represent 25% of next year’s published Lifetime Allowance).