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Lifetime Allowance

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

Pension tax changes

The government has announced changes to pension tax allowances and charges, which may affect tax management measures that you’ve put in place or your savings decisions. Find out more in our pension tax update.

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. Currently, the LTA still applies and is set at £1,073,100 but may be higher if you have an LTA protection. From 6 April 2023 the LTA tax charge was abolished, but you may still need to pay some tax depending on how you take your benefits in excess of the LTA.

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 (defined benefit), the value of your benefits is 20 times your annual pension – plus any cash lump sum you take at the same time.
  • For defined contribution savings (the Investment Builder and any Prudential Money Purchase AVCs), it’s the value of your savings (including any investment returns).

You can use our Benefit Calculator in My USS to estimate the value of your USS benefits and savings when you retire.

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?

Before 6 April 2023 if you exceeded your LTA you had to pay an LTA tax charge. From 6 April 2023 the tax charge was abolished and there is no longer a requirement to pay an LTA tax charge if you exceed the LTA, though you may still need to pay some tax depending on how you take your benefits in excess of the LTA.

If 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?

Prior to 6 April 2023, the LTA tax you needed to pay depended on how you took the benefits which were over the LTA limit:

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

From 6 April 2023 there is no LTA tax charge if you exceed the LTA. However, if you choose to take any benefits that exceed the LTA as an LTA excess lump sum this lump sum will be taxed at your marginal rate of tax. If you don’t take any of your benefits by age 75, they’ll be assessed against the LTA at that time.

Need a hand?

Sign up for a free Focus on Pension Tax webinar to learn more about pension tax, including USS specific tax mitigation options.

If you want to seek guidance or take financial advice on the options available to you, visit the guidance and financial advice page. You’ll find a range of resources to support your planning and you can also find information on how to access an independent financial adviser.

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