All things pensions tax.
Saving into, and taking money from, a pension normally means you get the benefit of tax savings.
There’s no limit on the amount of pension you are allowed to build up across all your pension schemes. However, there are some tax charges that might apply if your pension exceeds certain allowances.
Here you'll find a summary of some of the pensions tax rules that might impact you.
What's changed?
From 6 April 2024, there have been some changes to these allowances:
- The Lifetime Allowance (LTA) was removed.
- Two new allowances were introduced – the Lump Sum Allowance (LSA) and the Lump Sum and Death Benefit Allowance (LSDBA).
The Lump Sum Allowance (LSA).
You can normally take up to 25% of your pension savings tax free.
But, there’s now a maximum limit you can take in £’s too (set by the new Lump Sum Allowance) and is currently set at £268,275.
Taking a Pension Commencement Lump Sum (PCLS) or taking the tax-free element of an Uncrystallised Funds Pension Lump Sum (UFPLS) both count towards this allowance.
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But watch out, as these rules may change again in the future.
The allowances and limits described here apply at the time of sharing this update with you.
The Government sets the pensions tax rules, and updates these from time to time. It's possible that in the Autumn Budget (on 30 October 2024) Rachel Reeves, the Chancellor, may announce more changes to some of the rules around pensions tax.
We can't predict what the Chancellor will announce - but we'll update you after the Autumn Budget if there are any changes that you may need to be aware of.
The Lump Sum and Death Benefit Allowance (LSDBA).
This is the limit on the total amount of any tax-free lump sums payable during your life and upon your death and is set at £1,073,100.
This limit is reduced by any tax-free lump sum amount taken as part of the Lump Sum Allowance at retirement. Taking lump sum death benefits, a serious ill-health lump sum, a Pension Commencement Lump Sum (PCLS) or taking the tax-free element of an Uncrystallised Funds Pension Lump Sum (25% of the gross lump sum) also count towards this allowance.
If you have Lifetime Allowance protection in place or have taken some (but not all) of your pension savings before 6 April 2024, your lump sum allowances may be different.
A reminder about the Annual Allowance.
The Annual Allowance is the most you can add into a pension in a tax year before you have to pay any tax. It’s currently set at £60,000.
But, if you earn more than £200,000 in a year, then the Tapered Annual Allowance (TAA) reduces your allowance further.
This can reduce to a minimum of £10,000* (on a scale linked to income levels, including all pension contributions made by your employer over the year).
The Tapered Annual Allowance is calculated based on two income levels: your Threshold Income and your Adjusted Income. You can learn more about these levels and how to calculate them by reading the Government’s guidance on the Tapered Annual Allowance.
*This minimum taper of £10,000 will only affect individuals with a total Adjusted Income of more than £360,000.
If your Threshold Income is £200,000 or less
You will not be impacted by the Tapered Annual Allowance.
However, you may be subject to the Money Purchase Annual Allowance if you’ve already started taking money out of a Defined Contribution (DC) pension.
or
If your Threshold Income is more than £200,000
You will have to undertake the Adjusted Income test.
If your Adjusted Income exceeds £260,000: your Annual Allowance will be tapered at a rate of £1 for every £2 earned over £260,000