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TAX TIP TUESDAY: Lifetime Pension Allowance Flaw Could Result in Thousands of Extra Tax

Our 5-minute read – Tax Tips – for UK doctors and dentists will help you save tax, get organised with your tax affairs and make sure you meet important deadlines with ease.


This article does not constitute advice. Professional advice should be taken prior to acting on any part of it. The Financial Conduct Authority does not regulate tax advice. 


Understanding what you can and can’t do with your pension if you have a fixed protection is vital. Rules can be a minefield. One wrong step could have huge financial repercussions.


What the option to ‘fix protection’ on a lifetime allowance means

The lifetime pension allowance is the limit on the amount of money you can save tax-free into your pension throughout your lifetime. It generally rises each year parallel to inflation, however the lifetime allowance has decreased on a few occasions – from a high end £1.8m in 2011-12 and over the years dropping down to £1.0m in 2016-17.

The maximum you can save in your lifetime currently sits at £1,055,000.

Each time the allowance has dropped, high-earning pension savers were given the opportunity to fix their allowance through a ‘fixed protection’ option. This option allowed you to stay on the higher allowance as long as you abided by the terms and conditions of the fixed protection offering.


  • Fixed protection 2012 – means you are unable to pay into your pension, accrue benefits or receive an enhanced transfer value after 5 April 2012. Your lifetime allowance will remain at £1.8 million.
  • Fixed protection 2014 – means you are unable to pay into your pension, accrue benefits or receive an enhanced transfer value after 5 April 2014. Your lifetime allowance will remain at £1.5 million.
  • Fixed protection 2016 – means you are unable to pay into your pension, accrue benefits or receive an enhanced transfer value after 5 April 2016. Your lifetime allowance will remain at £1.25 million. Applications for this option are still open.

High earners, and high pension contributors need to be wary

One clause that you need to follow strictly is that your fixed protection will be cancelled if you contribute more to your pension than the normal indexation rules allow.

So even though building up your pension in a tax-favoured environment is advantageous to your retirement, the downside is that you could be confronted with a tax charge if the total value of your pension is more than your agreed lifetime allowance.


You run the risk of high tax charges if you aren’t well-informed in the art of pension savings

Even an extra £1 of pension could tip your fixed protected lifetime allowance over the edge. Where you once had an allowance of £1.8m, it would drastically be reduced down to the current standard lifetime allowance of £1.055m.

For high earners and high pension contributors, a worst case scenario could land you with a tax liability of over £400,000 – this is though the high end of the spectrum, however any additional tax charge is likely to be a burden when you have focused so long on contributing favourably to your pension and retirement plan.


Make sure you speak to the right people at the right time

If you have got a fixed protection option in place, you need to be on top of everything relating to your pension and the contributions you make. The risk of falling into an extra pension trap is high if you aren’t fully clued up on the rules and guidelines. It’s common to forget and accidently incur the wrath of taxation rules.

Keep communications open with your financial adviser. They can inform you of any changes to the tax legislation, and help to make sure you aren’t about to fall into a black hole of extra tax charges.

Contact us today to find out more about pension fixed protection.


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