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Lifetime Allowance

See how much you can take from your pension before you're charged any tax

What is the Lifetime Allowance?

The Lifetime Allowance (LTA) is the limit on the amount you can take from your pension savings before you’re charged tax. The government limit is set at £1,073,100 for the 2020/2021 tax year. It’s linked to consumer prices index (CPI) inflation so it may go up each tax year.

Each time you take an income and/or lump sum from your benefits or savings, you’ll use up some of your Lifetime Allowance.

It doesn’t apply to your State Pension – but it applies to all other pension benefits you build up anywhere else.

Watch our short video for an overview of pension tax, how you benefit from it and its limits.

How close are you to the limit?

Your LTA is worked out slightly differently depending on which part of USS you’re in. If you’re not sure which part you’re in, visit how your pension works.

Here’s how to work out roughly how close you are to the LTA:

  • For the Retirement Income Builder, the value of your benefits is 20 times your annual pension – plus any cash lump sum you take at the same time.
  • For the Investment Builder and any Prudential Money Purchase AVCs, it’s the value of your savings.

You can use our Benefit Illustrator to estimate the value of your USS benefits and savings when you retire. Use your Annual Member Statement or My USS to see what you’ve built up so far, then input this into the illustrator.

And remember, if you have any pension savings outside of USS, you’ll need to get the value of those benefits and savings from your other provider(s).

What happens if you go over the LTA?

If the benefits and savings you take exceed your remaining LTA, you'll have to pay an LTA tax charge. We’ll deduct the tax charge when we pay your pension benefits.

Once you've used up your LTA, you may be able to choose whether to take the excess as pension and/or a lump sum.

How is the LTA tax charge calculated?

The tax you need to pay will depend on how you take the benefits which are over the LTA limit:

  • Benefits taken as pension are taxed at 25%
  • Benefits taken as a lump sum are taxed at 55%

The rates are different because benefits taken as a pension will also be subject to income tax, but a lump sum won’t be taxed. However you take your benefits, the amount you’re taxed should be similar (the overall effect of an initial 25% tax on pension, followed by 40% tax on regular income is comparable to a one-off 55% tax charge).

If you don’t take any of your benefits by age 75, they’ll be assessed against the LTA at the time.

How can I protect my pension savings from the LTA charge?

You could choose one of the following options to help you manage your tax charges:

See protecting your benefits for the HMRC protections you can apply for too, to stop you from being penalised if the LTA reduces.

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