What is the lifetime allowance?

• A. The minimum pension value required to qualify for protection.
• B. The annual limit on contributions to a pension fund.
• C. The maximum value of pension benefits that can be built up without incurring additional charges.
• D. The maximum value of pension benefits that can be built up without incurring additional charges; exceeding it triggers a tax charge.

Answer: (D)

The lifetime allowance is the maximum value of pension benefits you can build up without incurring a tax charge. It applies to all your pension savings, including defined benefit rights and defined contribution funds, and is indexed over time. If the total value of your pension benefits exceeds this limit, the excess is charged tax when you crystallise benefits or draw from the pension. This concept is distinct from the annual allowance (which limits yearly contributions) and from protection schemes that can allow higher values to grow without immediate tax penalties. The best description is the idea that exceeding the lifetime allowance triggers a tax charge on the excess; the other options either describe a different limit or omit the consequence of exceeding the threshold.