To understand this, you need to understand which group you belong to…
The first group includes those who contribute more than the standard amount, have a certain type of plan, or have reduced their contributions over time. They will need to pay an additional fee called the Annual Allowance (AA) charge.
The second group includes those who already have a lot of money saved in their pension plan or have a special type of plan that protects their savings. They will need to pay an additional fee called the Lifetime Allowance (LTA) charge.
The third group is the people who manage the pension plans, and they will need to make changes to their processes to account for these extra fees and charges.
The AA is the maximum amount of money you can save in a pension each year without paying extra tax. The MPAA is a lower limit for people who have already accessed their pension savings. The tapered AA is a limit for high-earning individuals.
The LTA is the maximum amount of money you can save in a pension in your lifetime without paying extra tax. If you save more than the limit, you will be charged extra tax. The government will remove the LTA from pensions tax legislation in the future.
You can get a tax-free lump sum when you start receiving your pension. The maximum amount is currently 25% of your available LTA. There will be a cap of £268,275 on this maximum amount.
If you get a tax-free lump sum that is over the LTA, you will be taxed at your normal income tax rate, not a special rate of 55%.