Tax Relief

Pension benefits earned by individuals are subject to allowances set by HMRC.  The value of pension benefits are limited for tax purposes in two ways:

1. Lifetime Allowance (LTA)

The LTA is the maximum amount of pension savings an individual can build up over their life that beenfits from tax relief.  You can build up benefits in excess of the LTA but you will be subject to a tax charge on the value of benefits over the LTA.  The LTA will reduce from £1.25m to £1m with effect from 6 April 2016.

The LTA value of your retirement benefits is calculated as a capital value, i.e. pension x 20 + your tax-free lump sum + any defined contribution savings.  For example, if you have a pension of £45,000 pa and a tax-free lump sum of £135,000, the LTA value of your benfits will be a £1,035,000 (i.e. £45,000 x 20 + £135,000).  If the pension benefits at retirement exceed the LTA that is in place at retirement, a tax charge will arise on the excess.

2.  Annual Allowance (AA)

The AA is the value of pension benefits that you can accrue in one year, (called a Pension Input Period - PIP), and benefit from tax relief.  If this annual capitalised pension savings figure exceeds the AA, then income tax will be applied on the excess at your highest marginal rate of tax.

The AA is currently £40,000. From April 2016 the AA will be reduced for many members who have a total taxable income over £150,000 p.a. (including pension contributions), and who have an income (excluding pension contributions) in excess of £110,000 p.a. For those with taxable income over £210,000 p.a. the AA could fall to £10,000.

HMRC Protections

HMRC offer protection for members.  For more information please visit:

Maximum tax-free cash

As well as the LTA, there is also a limit on the amount of tax-free cash you can receive upon retirement.  This is restricted to 25% of the value of your total benefits at retirement (or 25% of the LTA if this is lower).

Further Information

For more information about pension taxation please visit: