How the Scheme works
A pension is one of the most tax efficient ways to save, but there are some limits:
Annual Allowance (AA)
Your annual allowance (AA) is the most you can save into your pensions in a tax year (6 April to 5 April) before you have to pay tax. On 6 April 2023, this limit will change from £40,000 to £60,000.
If you exceed the AA, we will send you a Pension Savings Statement in October.
If you have flexibly accessed a defined contribution pension or intend to do so, you would be subject to the Money Purchase Annual Allowance (MPAA). The MPAA limits the tax benefit of pension contributions. On 6 April 2023, this limit will increase from £4,000 to £10,000.
If you are a high earner, the Tapered Annual Allowance (TAA) may affect you if your adjusted income is more than £240,000 a year. With effect from 6 April 2023, the adjusted income is rising to £260,000. The minimum TAA is increasing from £4,000 to £10,000.
Further information about the AA, MPAA and TAA can be found by visiting the government website: gov.uk/tax-on-your-private-pension/annual-allowance.
The lifetime allowance (LTA) is the maximum amount of pension savings you can benefit from over the course of your lifetime before an additional tax charge applies. Most individuals are subject to the standard LTA which is currently £1,073,100, but some individuals have a protected higher LTA. From 6 April 2023, the additional tax charge has been removed and any pension income relating to pensions or cash lump sums that exceed the LTA will only be taxed at your marginal rate of tax.
Unless you have LTA protection, your tax-free cash lump sum allowance is limited to £268,275. The government plans to abolish the LTA entirely with effect from 6 April 2024. Based on our current understanding of the government plans, this tax-free cash lump sum limit will remain for the near future.
Further information about the LTA and LTA protection can be found by visiting the government website: gov.uk/tax-on-your-private-pension/lifetime-allowance