The pre-Budget Report delivered on 24 November 2008 announced that for tax years 2011/12 to 2015/16, the lifetime allowance will be maintained at its 2010/11 level of £1,800,000. It will then be reviewed.  Further details can be found in: Pre Budget Report 2008.  The Finance Act 2004 does not permit the lifetime allowance to be reduced.

The SLA applies to the value of all pension benefits built up by an individual. When benefits are taken (crystallised) they are tested against the SLA. The valuation basis depends on the way in which benefits are taken. The table below details how benefits are valued:

Type of arrangement	Valuation basis for benefits crystallised
Defined Benefits	DB schemes can only offer a scheme pension. A scheme pension involves paying a pension for life out of the scheme assets or buying an annuity out of the scheme assets. The value of the annual amount of pension promised by the scheme is multiplied by a standard valuation factor of 20:1. This factor includes an allowance for dependant's benefits up to the level of the member's pension at date of death and for annual increases of 5%. Any DB scheme that provides better increases can apply to HM Revenue and Customs for a scheme specific valuation factor which can be higher than 20:1. Defined Lump Sums (otherwise than by commutation) are valued using a factor of 1:1 and are added to the above value.
Money Purchase (including Cash Balance) benefits	Unsecured Income The valuation basis is based on the actual fund value (market value of the assets) used to secure either: Income Drawdown, or Short-term annuities Alternatively Secured Pension (ASP) The valuation basis is simply the fund value (market value of the assets) used to secure ASP. Secured Income The valuation basis used depends on the option chosen when benefits are crystallised. These are: Lifetime Annuity - This is simply valued on the basis of the fund value used to secure the lifetime annuity. Scheme Pension - Same as DB above. If a scheme provides separate Pension Commencement Lump Sum (PCLS) and not by way of commutation this will be valued based on a valuation factor of 1:1 and added to the value above.

Lifetime allowance (LA) charge

The lifetime allowance charge applies to all those who have benefits in excess of the SLA when they retire or die etc. Those who have opted for enhanced protection on their pre A-Day benefits will be fully exempt from this charge provided they do not contribute to any further pension arrangement after A-Day. However those who have opted for primary protection will be subject to a LA charge on the benefits value over their personal lifetime allowance. The LA charge can apply in either of two ways or a combination of both depending on how the excess benefits are taken. The charge is:

• 25% on any income taken, and
• 55% if taken as a lump sum.

Transitional protection

Individuals can protect their pre A-Day rights from the SLA by selecting from two forms of protection or both. These are:

Primary Protection (PP)

Enhanced Protection (EP)

Applies to anyone who had pre A-Day funds in excess of the SLA of £1.5m on 5 April 2006 and wants to register their own personal lifetime allowance (PLA). Expressed as a factor, it's the difference between the total of all pension savings held on 5 April 2006 and the SLA in force at 6 April 2006. This enhanced lifetime allowance factor will be increased in line with the SLA and applied to the lifetime allowance in force at the point benefits are paid on retirement/death (known as a ‘crystallisation event’). Any amounts in excess of this will be subject to a LA charge. Contributions can continue if suitable. The PCLS will be protected as a monetary amount if it exceeded 25% of the SLA on 5 April 2006. The amount payable will be the amount of PCLS available at 5 April 2006 indexed in line with increases to the SLA.

Applies to anyone who wants full protection from the lifetime allowance charge. There is no minimum fund to register for EP. Provided you also registered for PP (if applicable) you will retain the right to opt for PP at a later date if necessary. Anyone who selects EP must stop being an active member of all registered pension schemes prior to A-Day and cannot build up any further benefits in a registered pension scheme on or after A-Day, with the exception of any rebate payments that commenced prior to A-Day. Anyone who does, without advising the HM Revenue and Customs, will face a fine of up to £3000. If the member was entitled to PCLS of >25% of the benefits value at 5 April 2006 the amount of PCLS at vesting will be the amount of PCLS at 5 April 2006 increased in line with the SLA. If they were entitled to >25% of the SLA at 5 April 2006, at vesting the PCLS will be based on the same percentage of the benefits value as it was on A-Day. The maximum amount of PCLS that can be paid is equal to the SLA at vesting.

Advice issues

There’s no doubt that the advice that financial advisers can provide will be in demand. The main advice issues for financial advisers to consider include:

• Identify and target clients with TFC entitlement of greater than 25% of their fund.
• Discuss with clients the form of protection required.
• Identify clients with the potential to increase contributions up to the annual allowance, especially in the same tax year.
• Any application for transitional protection must be received by HMRC by 5 April 2009. See 5 April 2009 deadline for primary and enhanced protection.