In the past, the Lifetime Allowance, the amount an individual could pay into their pension in their lifetime without incurring a tax charge, was as much as £1.8million.
Over the years, successive government policy changes reduced this to £1m before it increased again to £1.073million where it was frozen until 2026. When the lifetime allowance was introduced in 2006, ‘enhanced’ and ‘primary’ protection allowed pension scheme members to protect benefits over, or likely to be over, the new limit. Every time the limit was reduced HMRC introduced new protections, Fixed 2012, 2014 and 2016 and Individual 2014 and 2016, ensuring those who might breach the
lower figure could protect the higher amount.

Now that the penalty for exceeding the lifetime allowances has been reduced to zero and the allowance is proposed to be abolished from April 2024, the question is, can those with these protections start to pay into a pension again without losing them?

Anyone who registered for protection by 15 March 2023 (and who didn’t invalidate or revoke it before 6 April 2023) cannot lose their protection. They can now pay into an existing pension again, transfer pensions and start new arrangements without being worried about invalidating the protection. However, those who registered for protection after 15 March 2023 can still lose their protection, as the old rules continue to apply in these cases.

For anyone who has already accessed their pension, their annual allowance for money purchase pension contributions is £10,000 per annum. High earners also may have their annual allowance tapered to between £60,000 and £100,000.  The annual allowance maximum contribution for the 2023-24 tax year has been increased to £60,000. Unused allowance from the previous three years (at £40,000 each year) can also be used, which means there is a potential to pay in up to £180,000.

The allowance is used up by your own, your employers and any third-party pension contributions made to your pension and also by the increase in any salary related benefits you have. If you hold one of the protections and would like to discuss contributing more to your pension, take advantage of the three year rule, or want to transfer or start a new pension, please call us on 0191 281 8811. 

Lowes Financial Management is authorised and regulated by the Financial Conduct Authority.