Annual and lifetime allowance

In this section we look at the HM Revenue and Customs (HMRC) rules about pension savings.

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 in addition to any income tax you pay on your pension when it is paid to you. Most people will be able to save as much as they wish because their pension savings are less than the allowances.

There is no limit on the amount of pension contributions you can pay. You will not get tax relief on all your contributions if you pay more than your taxable pay into your pension in a tax year.

There is a limit on the amount of extra pension you can buy in the LGPS by paying additional pension contributions. 

The annual allowance

The annual allowance is the amount your pension savings can increase by in a year without you having to pay extra tax. If your savings increase by more than the annual allowance, you will have to pay tax on the excess. 

The lifetime allowance

The lifetime allowance is the total value of all pension benefits you can have without having to pay extra tax. If the value of your pension benefits when you take them is more than the lifetime allowance, or more than any protections you may have, you will have to pay tax on the excess benefits. This does not include any state pension, state pension credit or any partner’s or dependant’s pension you are entitled to.

The lifetime allowance covers any pension benefits you have in all tax-registered pension arrangements – not just the LGPS.

For more information, please see the links below: