There has been a lot of great news surrounding pensions of late, however keep an eye on how much you have saved.

The Lifetime Allowance is the maximum amount of pension savings that you can make tax-free over your lifetime. This is currently £1.25 million. The Government has announced that the Lifetime Allowance will reduce to £1 million from 6 April 2016.

When you come to take your pension savings, anything over your tax-free lump sum will normally be taxed at your marginal rate of income tax. If your pension savings are higher than the Lifetime Allowance, then any pension savings above this level will be subject to an additional tax charge of up to 55 per cent.

You can check if you are likely to be affected by the Lifetime Allowance by asking your pension provider how much your unused pot is worth and how much of your Lifetime Allowance you’ve already used up. However remember that contributions and investment growth will increase this value over time.

If you are in a defined benefit scheme, for example a final salary scheme, the calculation depends on how much your provider promises to give you per year when you retire. This amount, multiplied by 20, plus the amount of any lump sum is the amount that will count towards your Lifetime Allowance. Therefore if you receive a pension of £45,000 per year plus a lump sum of £135,000, this would have a value of 20 x £45,000 plus £135,000 = £1,035,000.

Your pension provider will be able to tell you what kind of scheme you are in if you do not know. For those affected by the reduction in the LA, the Government says transitional protection will be available.

If you think you may be affected, you do not need to do anything now but you can prepare for April 2016 by checking the value of your existing savings.

Warren Shute 01793 771093 or warren@lexingtonwealth.co.uk