Tax limits and your pension
Contributions you pay to the LGPS are tax-free up to certain limits. You may have to pay extra tax if your pension savings are more than those limits.
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.
There is no limit on the amount of pension contributions you can pay. However, you will not get tax relief on all your contributions if you pay more than your taxable pay into your pension in a tax year.
There is a limit on the amount of extra pension you can buy in the LGPS by paying additional pension contributions. The most you can currently buy is £8,344 of extra yearly pension (2024/25).
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.
For further information, please view the annual allowance section on our website.
Lump sum limits
Two lump sum limits were introduced from 6 April 2024. If the total of all lump sums you take from UK pensions is more than one of these limits, you will have to pay extra tax. Tax on any excess is charged at your marginal rate.
In the LGPS, you can generally take up to 25% of the value of your benefits as a lump sum. Most members will not be affected because the maximum lump sum they can take is much lower than the limits. If you have built up a large pension in the LGPS or a different scheme, the new limits may affect you.
The following weblink takes you to the ‘lump sum limits’ page, where you will find further information.