The lifetime allowance or Standard Lifetime Allowance (SLA) restricts the total amount of pension fund an individual can build up from contributions that have received tax relief; it is set by the Government. It applies to all the different pensions that you hold combined together (excluding the basic state pension and state second pension). Any benefits taken that are of greater value than the SLA, known as ‘excess’ funds, will be subject to a tax ‘recovery charge’. The scale of this charge is designed to take back the benefits of tax relief and growth on the ‘excess’ of the fund.
The SLA of £1.5 million for the tax year 2006/2007 has been set by the Treasury and will increase annually until 2010/2011 tax year when it will have reached £1.8 million. The yearly figures increment as follows:
- 2006/2007 >> £1.5 million
- 2007/2008 >> £1.6 million
- 2008/2009 >> £1.65 million
- 2009/2010 >> £1.75 million
- 2010/2012 >> £1.8 million
Further Treasury Orders will set out the SLA’s from 2011/2012 on. The SLA cannot reduce and there is no legislative commitment to increase it annually.