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Tax and pensions

The annual allowance is the amount your pension savings can increase by in any tax year before you have to pay an extra tax charge.

The standard annual allowance is £60,000 (for the 2024/25 tax year) although a lower limit of £10,000 may apply if you’ve already started taking a pension.

If the value of your pension savings in any one year, across all the pension arrangements you belong to, go over the annual allowance, you will pay tax on the excess.

Your annual allowance might be different from the standard level:

It may be higher, because you can carry forward ‘unused’ allowance from the past three tax years.
It may be lower if you are a high-earner with a ‘tapered’ annual allowance (This may only apply to you if you earn £200,000 or more. Visit www.gov.uk/guidance/pension-schemes-work-out-your-tapered-annual-allowance for more information.

If your benefits in the LGPS go over the standard annual allowance, we’ll send you a statement by 6 October to let you know. Please bear in mind that we cannot tell you if your LGPS benefits are over your tapered annual allowance (if this applies to you), or if your overall pension benefits take you over the allowance.

If you go over the annual allowance in any year, you must report it on your self-assessment tax return.

‘Scheme pays’

If you have an annual allowance tax charge over £2,000 and your pension savings in the LGPS alone are over the standard annual allowance, you can the LGPS to pay some or all of the tax charge on your behalf. We would then take the tax charge from your pension benefits.

For more information on the annual allowance visit Tax :: LGPS (lgpsmember.org)

If you’d like to work out the effect of making further contributions to the LGPS, please go to the calculator on HMRC website at www.tax.service.gov.uk/pension-annual-allowance-calculator.

Before 6 April 2024, the ‘lifetime allowance’ applied to the total amount of pension savings you could build up before paying additional tax charges.

From 6 April 2024 the Government replaced the lifetime allowance with two allowances that were linked to the ‘old’ lifetime allowance:

Lump sum allowance: the highest amount of cash you can receive when you retire, tax-free. This is currently £268,275 – that is, 25% of the final value of the old lifetime allowance, £1,073,100.
Lump sum and death benefit allowance: the highest total amount of cash you can receive when you retire, together with any cash payable to your dependants following your death. This currently matches the old lifetime allowance amount, £1,073,100.

If a lump sum due to you from the LGPS exceeds your lump sum allowance, you may need to take a lower lump sum or pay an additional tax charge.

It was possible to apply for protection against changes to the lifetime allowance. These protections will still be valid to allow people to take a higher tax-free lump sum if they would have been entitled to that under the lifetime allowance rules.

Further information on these allowances can be found here: Find out the rules around Individual Lump Sum Allowances - GOV.UK (www.gov.uk)

After your pension starts…

Although we can help you understand your tax code, it’s HM Revenue and Customs (HMRC) that works out how much Income Tax you should pay, and they provide us with the tax code that’s applied to your pension.

If you have a question about the tax you pay on your pension. you’ll need to speak directly to HMRC on 0300 200 3300 (or 0300 200 3319 for textphone). Make sure you have your National Insurance number handy (you can find this on your P60).

You can contact the payroll department that deals with enquires such as tax codes and P60s etc. at pensionspayroll@southwark.gov.uk.

Tax and pensions

TAX AND PENSIONS

Annual allowance

‘Scheme pays’

Lump sum allowances

After your pension starts…