For pensions that start to be drawn on or after 6 April 2006, the capital value of those pension benefits is worked out by multiplying your annual pension by 20 and adding any lump sum you draw from the pension scheme.
For pensions already in payment before 6 April 2006, the capital value is worked out by multiplying the current annual rate, including any pensions increase, by 25. Any lump sum already paid is ignored in the valuation.
When any LGPS benefit, or any other pension arrangement you may have, is put into payment you use up some of your lifetime allowance. So, even if your pensions are small and individually will not be more than the lifetime allowance, you should keep a record of any pensions you receive. If you have a pension in payment before 6 April 2006, this will be treated as having used up part of your lifetime allowance.
If your LGPS benefits are more than your lifetime allowance limit you will have to pay tax on the excess. If your excess benefits are paid as a pension the charge will be 25%, with income tax deducted on the ongoing pension payments; if the excess benefits are taken as a lump sum they will be taxed once only at 55%.
You can choose to pay the tax charge immediately by a reduction to your lump sum or you can ask the scheme to pay the charge for you in return for a permanent reduction to your pension – this is called a lifetime allowance debit.
If you exceed your lifetime allowance, you may have to pay a lifetime allowance tax charge when your benefits are paid to you. If the value of your benefits is higher than the available lifetime allowance, you can choose how to take your benefits and the tax charges that apply.
A lifetime allowance quick check tool can now found on the LGPS members website.