Should I add more money to my pension even though I am already over the lifetime allowance?

30 July 2021

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Question by Louis

I will be receiving both my final salary work pension and my private pension in the coming months. Together they take me c70k over the government's lifetime allowance limit. I also have 150k redundancy in the same period. I was going to use my unused pension allowance, going back 3 years, to invest in a SIPP. Would you still recommend this - as I know I will already be over the government's lifetime allowance limit - or are there other tax efficient ways to invest the money that would be more attractive in my circumstances?

Answered by Alistair Fullerton

Hi Louis, in general it isn’t advisable to add more money to your pension when you are already over the lifetime allowance – any money over the LTA will be subject to 25% or 55% tax charges so the tax relief will be negated by these charges. There may also be some issues with ‘recycling’ of your pension when adding money back in after crystalising some pension. Do you have a spouse who earns income? If so you may be able to use some of their pension allowance. If not, and dependent on your risk profile it may be worth looking at ISAs, EIS and VCT investment which are all tax efficient options that have their own pros and cons.

Answered by

Alistair Fullerton

Financial Adviser & Director

Me, raised near Manchester and now have been working in the City for the past decade helping clients who work for the big City based employers.