Paying a 55% tax charge on excess pension benefits is an unwelcome outcome for some in retirement who breach the lifetime allowance.
Set at what looks to be a generous £1m in the 2017/18 tax year, the lifetime allowance applies to all pension benefits including the value of pensions promised through any defined benefit (final salary pension) schemes.
The lifetime allowance does however exclude your state pension benefits.
This article highlights that relatively few people know that death-in-service benefits count towards the lifetime allowance.
These death in service benefits can often be set at a generous level of say four times your salary, quickly pushing you into the lifetime allowance tax trap.
“It is hard enough dealing with the loss of a loved one without having to face a huge tax bill as well. “It is ridiculous to say that someone who has died has saved ‘too much’ into a pension because they were unfortunate enough to die prematurely.