Annual Allowance
This is the limit on the amount that can be paid into your pension each year, while still receiving tax relief.
It can be reduced for high earners, called the Tapered Annual Allowance. For information on the current Annual Allowance limits please visit www.gov.uk/tax-on-your-private-pension/annual-allowance
Money Purchase Annual Allowance
The Money Purchase Annual Allowance applies if you take benefits ‘flexibly’ from your pension account or another pension arrangement (for further information see www.gov.uk/tax-on-your-private-pension/annual-allowance). This limit restricts the level of payments that can be made free of tax by you and your Employer to pension arrangements like the Fund to a lower limit.
If you do trigger the Money Purchase Annual Allowance, the option to use unused allowances from previous years is removed.
Irrespective of the Annual Allowance, your own payments and where relevant those from the Government (tax relief) in each tax year will normally be limited to 100% of your net relevant earnings, or £3,600 (whichever is greater).
Pension Input Period
HMRC require the amount of pension savings to be tested each year over a ‘pension input period’. The Fund’s pension input period runs from each 6 April to the following 5 April. Pension savings in excess of £60,000 do not qualify for tax relief (and lower limits may apply as described in the Annual Allowance section).
For more information on pension input please visit www.tax.service.gov.uk/pension-annual-allowance-calculator
Changes to the Lifetime Allowance
As of 6 April 2024, there is no limit on the total amount of tax-efficient pension savings that you can build up (previously the Lifetime Allowance applied). Instead, cash sums are now assessed against new allowances, with any excess subject to the recipient’s marginal rate of income tax.
There are two main allowances:
- The Lump Sum Allowance of £268,275, the limit on the tax-free cash sums you can normally receive in life.
- The Lump Sum and Death Benefit Allowance, of £1,073,100, is the limit on the total of the tax-free cash sums that can be paid in life and received by your beneficiaries if you die before age 75.
Exceptions, protections and transitional arrangements may apply:
- Exceptions – some cash sums don’t use up the allowances, e.g. small cash lump sums.
- Protections – if you have Lifetime Allowance protection and/or lump sum protection, you’ll retain your right to any higher protected entitlements.
- Transitional arrangements – if you used up part of the Lifetime Allowance, your new allowances will be reduced.
For more information on the new allowances, visit www.gov.uk/tax-on-your-private-pension