Is my pension taxed?
The contributions you pay to the LGPS are tax free up to certain limits. You may have to pay extra tax if your pension savings are more than those limits.
There are limits on:
• the amount of pension savings you can make in a year, and
• the total amount of pension savings you can have in all pension schemes
before you have to pay extra tax. These are called the annual allowance and the lifetime allowance. This is on top of any income tax you pay on your pension when it’s paid to you. Most people will be able to save as much as they want because their pension savings are less than the allowances. Take a look at these pensions made simple videos for an overview of these tax limits.
The Government has confirmed that no-one will pay a lifetime allowance tax charge from 6 April 2023. If a tax charge arose before this date it’s still payable. The lifetime allowance will be abolished completely from 6 April 2024.
There’s no limit on the amount of pension contributions you can pay. You won’t get tax relief on all your contributions if you pay more than your taxable pay into your pension in a tax year.
There’s a limit on the amount of extra pension you can buy in the LGPS by paying additional pension contributions. The most you can currently buy is £7,579 of extra yearly pension.
Annual Allowance
The annual allowance (AA) is set by HMRC. It’s the amount your pension savings can increase in any one year without you having to pay a tax charge. If your savings increase by more than the AA, you’ll have to pay tax on the excess. Most people won’t be affected by the AA because their pension savings won’t increase by more than the limit. Or, if it does, they’re likely to have unused allowance from previous tax years that can be carried forward.
If, you’re affected we’ll let you know by no later than 6 October following the end of the relevant tax year.
For information on:
- who’s affected by the AA
- how it’s calculated
- tapered AA
- how to pay
please read the annual allowance factsheet on our forms and resources page.
Lifetime Allowance
The lifetime allowance (LTA) is the total amount you can build up in all your pension savings without paying a tax charge. This year the Government announced that no-one will pay a LTA tax charge from 6 April 2023. If a tax charge arose before this date, it’s still payable. The LTA will be abolished completely from 6 April 2024.
Before 6 April 2023:
- if the value of your pension benefits when you took them was more than the LTA; or
- more than any protections you held;
you had to pay tax on the excess benefits. This didn’t include any:
- state pension;
- state pension credit; or
- any partner’s or dependant’s pension you’re entitled to.
The LTA covered any pension benefits you had in all tax-registered pension arrangements – not just the LGPS. You can find out more information on the LTA on the LGPS members website.