Tax limits and your pension

One of the benefits of saving with a registered pension scheme, such as the LGPS, is that you receive tax relief on the contributions you pay into the scheme. However, there are limits on:

  • the amount of pension savings you can make in a year – the annual allowance, and
  • the lump sum you can take when you take your pension

before you have to pay extra tax. 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 and maximum lump sum are less than the limits.

 

Limits on how much pension you can build up – 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 standard annual allowance increased from £40,000 to £60,000 on 6 April 2023. If you are a high earner, your annual allowance could be lower due to ‘tapering’.

For money purchase arrangements, such as AVC schemes, the annual allowance you use is the total contributions paid by you, or on your behalf, over the tax year.

For defined benefits arrangements, such as the main LGPS scheme, the amount of annual allowance is the growth in the value of your pension over the tax year.

If your LGPS pension savings in a year ending 5 April exceed the standard annual allowance, Staffordshire Pension Fund will inform you by 6 October.

Most people aren’t affected by the annual allowance because their pension savings don’t increase by more than £60,000 in a year.

 

Pension savings statements

What is a pension savings statement?

Your pension savings statement shows the growth in your pension benefits in the Staffordshire Pension Fund and checks them against HM Revenue and Customs' (HMRC) annual allowance (AA). 

What is the annual allowance?

The annual allowance is the maximum amount of pension savings on which you can receive tax relief each year. The annual allowance is set by HMRC.

Why have I received a pension savings statement from you?

We will send you a statement for one of the following reasons:

  • our records show that the increase in your pension savings in the Staffordshire Pension Fund over the relevant tax year exceeds the standard annual Allowance, based on the information we hold on your pension record at the time of the calculation;
     
  • your increase in pension savings is close to the HMRC annual allowance limits and could exceed these limits if you are also a member of another UK based pension arrangement;
     
  • you have requested a statement;
     
  • a third party has requested a statement on your behalf. You will need to forward this to them; or

  • we have revised a previous statement due to a notification of a data change. 

What should I do with my pension savings statement?

Where your pension savings exceed the annual allowance in the relevant tax year, there may be an annual allowance tax charge payable on the amount of the excess over annual limit.

You need to find out if you have an annual allowance tax charge, and the information contained in your pension savings statement should help you to discover this.

 

Where can I get more information?

You may also find the video from the national Local Government Pension Scheme website for members helpful. For sub-titles, select the CC button on the video.

Your annual allowance