Four alternative ways to deal with the new pensions lifetime limit

Last week we explored the different protections you can put in place that will save you from punitive tax, but they aren't the only path you could consider. Here we look at some alternative ways to make sure your finances aren't being battered by the new allowance. And we also consider if you need to do anything at all. As Paul Flynn, principal adviser at Paul J Flynn says: "Why limit yourself to a relatively small pot? Think big and pay the tax."

1. Ask your boss for payments in lieu of pension

If you're working in the private sector and you're approaching the lifetime limit, it could be worth asking your boss if you could have your pension paid to you as annual salary instead - called an 'in lieu of pension payment'. Laith Khalaf, head of corporate research at Hargreaves Lansdown, says companies are sometimes reluctant to do this because they don't get as much tax relief by paying you salary instead of pension - so you might have to accept a slightly smaller payout to allow for tax. If you're not a company director, he recommends approaching your HR department to ask about this.

2. Turn defined benefit pension into spouses' pension

If you have a guaranteed defined benefit pension that's approaching or exceeding the lifetime limit, you can reduce its value by increasing your provision for a widow's or widower's pension. This is because some pension arrangements only count your pension towards the LTA, ignoring any 'side entitlements' such as spouse or children's pensions.

John Fish, a senior railway manager from London, is 50 and is approaching the lifetime limit on his DB pension. So he increased the pension his wife will get if he dies first from 50 to 66 per cent of his pension, by sacrificing some of his own pot, bringing its value much lower so he's now in no danger of exceeding it. "I felt this was a sensible thing to do, as my wife is six years younger than me, and women tend to live longer than men," he said.

Doing this is allowed under John's scheme rules, but it wasn't obvious or advertised, or actively suggested to anyone over or approaching the lifetime allowance. "You have to really dig for quirks like this," he added. You should ask your pension scheme administrator if this is an option you could take.

3. Top up your spouse's pension

If you opt for fixed protection 2014, you won't be able to make any more contributions to your pension. Instead, you can funnel your resources into a self-invested personal pension (Sipp) in your spouse's name, providing they are still well below the limit. They will be able to access the money when they are 55, and will be able to keep their money invested in stocks and shares without having to worry about the returns being gobbled up by punitive tax.

4. Ignore the lifetime limit and pay the tax

If you only face tax charges on future provision, continued pension funding might still make sense if your employer offers you pension contributions with no alternative compensation if you refuse it. As Mike Morrison, head of platform marketing at AJ Bell, puts it: "A taxed benefit is better than no benefit - particularly if the employer pays."

If you breach the lifetime limit you would still receive at least 45 per cent of any contribution over the limit (after 55 per cent LTA tax on benefits taken as a lump sum), which is better than nothing at all. Alternatively, if you take the pension as income, then you'll be hit with an additional 25 per cent tax charge on top of any income tax due, which would mean a higher-rate taxpayer would be left with 35 per cent of contributions.