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Pension allowances and tax benefits

Find out how to make tax relief work for you and check the current pension allowances that can help you to maximise your retirement income.

Annual Allowance

The annual allowance is the limit on how much you can save into your pensions each tax-year while still benefiting from tax relief on your contributions, any employer contributions and any contributions made on your behalf by someone else.

Find out more about annual allowance

Tax relief

Tax relief is a government tax-break intended to encourage you to save for your retirement. The amount of tax relief you are entitled to depends on a range of factors relating to your personal situation. We can help you understand more about how the tax relief rules might affect your contributions.

Find out more about tax relief

Carry forward

Carry forward allows you to make use of unused annual allowances from the three previous tax years if you have used up your annual allowance for the current tax year, thus increasing the amount of tax relief you can claim. Find out how this works and how you might be able to claim it.

Find out about carry forward allowance

Tapered annual allowance

The tapered annual allowance further limits the amount of tax relief high earners can claim on their pension contributions by reducing the annual allowance. Read more about how this might affect you and the steps you can take to make your contributions more tax-efficient.

Find out about tapered annual allowance

Money purchase annual allowance

Once you begin taking taxable money from your pension pot using pension freedoms, generally you will be subject to a reduced annual allowance that limits the tax relief that you can receive on future contributions. Find out more about how and if this might affect you.

Find out about money purchase allowance

If you exceed your annual allowance

If you’ve contributed more than your annual allowance and don’t have any or enough ’carry forward’ available from previous years, you may be taxed on the portion of your contribution that is above your annual allowance (usually £60,000, but this could be lower)*. This is known as the annual allowance charge.

If you have an annual allowance charge to pay, there are some options for how it can be paid.

The ‘Scheme Pays’ option means that, rather than paying the tax out of your own savings or other funds, you can ask your pension provider to pay on your behalf from your pension pot. This will, of course, reduce your future benefits correspondingly.

1. Your pension scheme must agree to pay this tax if:

  • The annual allowance charge for the tax year across all of your pension schemes is greater than £2,000.
  • You’ve put more than £60,000, in that tax year, into the pension scheme the charge is to be taken from.

2. Your pension scheme may agree to pay this tax if:

  • The annual allowance charge for the tax year within the pension is less than £2,000.
  • You’ve put less than £60,000, in that tax year, into the pension scheme the charge is to be taken from.

Please note: even if your scheme pays the charge you’ll need to include details of it on your self-assessment tax return.

Remember too that it’s your responsibility to monitor if your annual allowance is exceeded and to notify HMRC if an annual allowance charge is due.

* Tax relief is only available up to 100% of your earnings or £3,600, (gross) if that’s higher. If you contribute more than £60,000 (the annual allowance) in the 2023/24 tax year you may have to pay a tax charge, unless you have unused allowance from any of the three previous tax years. If you have earnings above £200,000 the amount you can contribute and get tax relief on may be lower (down to £10,000) and if you have flexibly withdrawn money from your pension savings this could be just £10,000.

Understanding the annual allowance charge

Read our factsheet to help you understand the annual allowance charge and how it can be paid.

The value of investments can go down as well as up, so you may get back less than you invest. Tax treatment and eligibility to invest in a pension depend on personal circumstances. All tax rules may change in future. Pension money cannot normally be withdrawn until age 55.

This information is not a personal recommendation for any particular product, service or course of action. Pension and retirement planning can be complex, so if you are unsure about the suitability of a pension investment, retirement service or any action you need to take, please call our Workplace Investing Service Centre on 0800 3 68 68 68 or refer to an authorised financial adviser.