With regards to taking your benefits at retirement there is a lifetime allowance, this is the maximum fund that is allowed at retirement, when benefits are taken, that will be tax exempt. This rule should not affect the majority of retirees, and when first brought into play in 2006 this lifetime allowance was set at £1,500,000 per person, as of 2011 this has increased to £1,800,000.
If you are fortunate enough to have a private pension fund in excess of this amount when you choose to take your benefits, there will be a 55% tax charge on any lump sum drawn or a 25% charge on income.
There are however, transitional rules in place for those that have excess benefits that were in place before April 2006. If you believe that you may be affected by the lifetime allowance charge it would be wise to seek the advice of a pension specialist as this can be a complex matter.
Annual allowance
As well as the lifetime allowance there are annual pension contribution limits. The reasoning behind the annual allowance was to limit the tax advantages (and consequent cost to the government) of pension contributions to the rich. The current annual allowance for 2011/2012 is £50,000.
