Qualified Financial Adviser (QFA) Pensions Exam 1 Practice Test

What happens if the lifetime allowance is exceeded?

There is no tax relief on any further contributions. The lifetime allowance is automatically reset for the following year. The excess is carried forward to the next year for relief. A tax charge is payable on the excess over the lifetime allowance.

Correct Answer:

A tax charge is payable on the excess over the lifetime allowance.

Explanation:

The lifetime allowance sets a cap on the total value of your pension benefits that can be taken without a tax charge. If the value of benefits crystallised (taken or tested) exceeds this cap, the excess is taxed. The charge is payable on the excess and reduces the amount you ultimately receive. This isn’t reset next year, nor can any excess be carried forward for relief in future years. There isn’t automatic relief for future contributions to offset the excess.

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