Lifetime allowance – examples
Lifetime allowance example 1 – Sarah
Sarah retires on 31 May 2021. she has not taken any pension benefits previously.
|Sarah’s financial information||Amount|
|LGPS annual pension||£25,000|
|LGPS lump sum||£45,000|
|AVC taken as a lump sum||£116,375|
|Capital value of LGPS benefits||£661,375*|
* The capital value is (20 × £25,000) + £45,000 + £116,375
The capital value of Sarah’s benefits is less than the lifetime allowance for 2021/22 of £1,073,100.
She has used 61.63% of the available lifetime allowance.
Lifetime allowance example 2 – Patrick
Patrick retires on 31 January 2022. He has not taken any pension benefits previously and he has not applied for any lifetime allowance protection.
|Patrick’s financial information||Amount|
|LGPS annual pension||£50,000|
|LGPS lump sum||£120,000|
|Capital value of benefits (20 × £50,000) + £120,000||£1,120,000|
|Excess over lifetime allowance of £1,073,100||£46,900|
|Tax charge payable on excess||£15,477*|
* Patrick opted to be paid the benefits in excess of the lifetime allowance as a lump sum. Tax on the lump sum is charged at 55%.
The tax payable is £46,900 ÷ 20 × 12 × 55% = £15,477.
Patrick has used 100% of the available lifetime allowance.