In April 2006, the Government brought in wide ranging changes to the tax regime surrounding pensions - A Day as it was called. Many of the options you will find on this website, such as topping up your benefits or taking a bigger lump sum are now open to more members thanks to this new tax regime.
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But this tax regime also imposes certain limits, for example on the size of your ‘pension pot’. If you are a high earner, there are two key limits you should know about. These are the Annual Allowance and the Lifetime Allowance.
The Government is now reducing the annual allowance and lifetime allowance to ensure the system of pensions tax relief remains fair and sustainable, and to protect public finances.
The reductions to the allowances are contained in the Finance No 3 Bill 2010-2011 which became an Act (law) on 19 July 2011. The necessary changes to scheme regulations will follow shortly to incorporate the new legislation.
The AA, as its name implies, is a limit that applies year on year. It looks at the increase in the value of pension benefits from one year to the next. From 6 April 2011 the limit went down from £255,000 to £50,000. There are also new calculation methods and annual pension savings are now tested against the AA in the year benefits are taken.
This reduction will affect more people than the reduction in the LTA, and especially those who are both better paid and who have lots of membership.
 More about the Annual Allowance
The LTA is the limit on the amount of pension and/or lump sum you can get from any HMRC registered pension schemes that benefits from tax relief. There is no limit on the amount of benefits that your pension scheme can pay you. However if your pension scheme gives you benefits that total more than your lifetime allowance you'll pay a tax charge on the difference between your lifetime allowance and your pension benefits.
The LTA is currently £1.8 million. From 6 April 2012, the LTA will be reduced to £1.5 million.
If you think your benefits will exceed £1.5 million when you retire, you can apply to the HM Revenue & Customs (HMRC) for a new form of protection called ‘Fixed Protection’. (Those with fixed protection will in effect secure for themselves a lifetime allowance of £1.8m whilst the standard lifetime allowance is below that amount.) Applications for ‘Fixed Protection’ must be made to HMRC before 6 April 2012. Forms will be available on their website very soon so please keep checking it for updates.
Please note: We understand that anyone with existing primary or enhanced protection will not need to apply for fixed protection. However, please see the HMRC website for more details on this if this applies to you.
 The issues involved are complex and relate to personal taxation. The Pensions Office cannot therefore provide any personal guidance or advice. Having considered your own position however, you may wish to take your own personal independent advice.
More about the Lifetime Allowance
hmrc.gov.uk 
lge.gov.uk
More about Topping up your Benefits
More about taking a bigger lump sum
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