Pension Lifetime Allowance

[lightyearsahead]

Can someone help me understand this a bit better.
If your "money" stays in a pension fund and it exceeds the lifetime allowance they one you draw down the extra you pay 55% tax - is that correct?

If you crystalize your pension as you reach the lifetime allowance, take your 25% tax free sum. Then if your fund continues to grow you are not subject to the lifetime allowance tax if it grows above the rate.

I do understand you are subject to personal tax when you take the money.

I am trying to work out when best to move my pension to drawdown mode but still in active funds.

A test against Lifetime Allowance is made each time there is a Benefit Crystallisation Event (BCE).

Once you have used up all your LTA, any further crystallisations will incur the excess tax charge, either at 55% if taken as lump sum or 25% if taken as income (eg drawdown).

There is a final LTA test at age 75 when not only are any remaining uncrystallised funds tested against LTA, but also any growth in your drawdown fund. The idea behind this is to encourage spending of the drawdown pot over time (and paying the corresponding income tax due) rather than just withdrawing tax free cash.

Your drawdown pot will remain invested in your chosen funds to grow until such time as you choose to withdraw it.

@Sunseed has explained it well. The key bit for you is if you go into drawdown as well as a BCE at the point you start drawdown there is a second BCE when you reach 75 which will look at any growth in your pension.

The government website explains it pretty well.

www.gov.uk/hmrc-internal-manuals/pensions-tax-manual/ptm088100

Trying to work out if you will breach LTA is a nightmare as you have to factor in future growth of funds, future inflation and future increases in LTA (which is currently frozen)