Lifetime Allowance

The Lifetime Allowance is the total amount of pension saving that you may make under the tax privileged treatment that pensions enjoy.

For Section 2 members, the total value of your entitlement under the Plan at retirement will be measured against the Lifetime Allowance. To calculate the value of your entitlement, the pension available to you (prior to commutation for tax free cash) should be multiplied by a factor of 20 and added to any fund you have built up by making Additional Voluntary Contributions. You will need to undertake the same calculation for your pension savings from other sources (see Testing your benefits against the Lifetime Allowance). This figure is then compared against the Lifetime Allowance which will start at £1.5 million in 2006 and increase each year until 2010, when the Government will review it.

Tax Year	Lifetime Allowance
2006/7	£1.5m
2007/8	£1.6m
2008/9	£1.65m
2009/10	£1.75m
2010/11	£1.8m

The Lifetime Allowance will apply to all your benefits at retirement from all sources and not just O2. If you have benefits from another employer you should ask them how much of the Lifetime Allowance those benefits have used up.

Testing your benefits against the Lifetime Allowance

Exceeding the Lifetime Allowance

Under the O2 Pension Plan you will not be prevented from exceeding the Lifetime Allowance, however you may wish to consider carefully whether you wish to make savings that do not enjoy the same tax priviledged status as those savings within the Lifetime Allowance. When your fund is used to generate pension benefits it will be subject to tax. Those benefits falling above the Lifetime Allowance are taxed at a higher rate than those below it; the table below illustrates.

	Tax Free Cash	Pension
Fund below the Lifetime Allowance	May take 25% of fund as tax free cash (see Cash allowance)	Pension taxed as income at your marginal rate of income tax of (either basic rate of 22% or higher rate of 40%)
Fund above the Lifetime Allowance	No tax free cash allowed	Pension taxed as above plus an additional 25%. May take as cash with total tax of 55%.

Those members of the Plan who exceeded the Lifetime Allowance purely through their membership of the O2 Pension Plan on the 6 April 2006 have been written to individually.

If you have benefits that are close to or exceed the Lifetime Allowance you should consider taking financial advice to ensure that you are saving in the most efficient way for you. Help on finding a financial adviser can be found at Financial Advice