Tax and pensions

There are two controls managed by HM Revenue and Customs (HMRC) on the amount of pension savings you can make without having to pay an additional tax charge. These are known as the Annual Allowance and Lifetime Allowance. Don’t forget that that this is in addition to any Income Tax you pay on your pension once it’s in payment.

Annual Allowance (AA)

The AA is the maximum that can be paid towards your pension in any tax year before an additional tax charge is payable. It’s capped at £40,000 (for the 2020/21 tax year) although a lower limit of £4,000 may apply if you’ve already started taking a pension. The AA applies across all of the schemes you belong to. It’s not a ‘per scheme’ limit and includes all of the contributions made by you or your employer or anyone else on your behalf.

If the value of your pension savings in any one year (including pension savings outside of the Local Government Pension Scheme (LGPS) are in excess of the AA, the excess will be taxed as income.

If you exceed the AA in any year you are responsible for reporting this to HMRC on your self-assessment tax return.

The Scheme will send you a Pension Savings Statement no later than 6 October in the event your benefits accrued within the Scheme exceed your AA limit. However, the Scheme won’t be able to tell you if you exceed the Tapered Annual Allowance (which is lower than the standard AA) due to the definition of income used by HMRC. Visit for more information.

If you have an AA tax charge that is more than £2,000 and your pension savings in the LGPS alone have increased in the year by more than the standard AA you may be able to opt for the LGPS to pay some or all of the tax charge on your behalf. The tax charge would then be recovered from your pension benefits.

If you’d like to learn more about the potential impact of making further contributions to the Scheme, please go to the AA calculator on HMRC website at

Lifetime Allowance (LTA)

The LTA is the maximum value of pension benefits (excluding any State Pension) which you can receive before you have to pay a tax charge. It’s set at £1.075 million (for the 2020/21 tax year) and it changes each year based on movement in the Consumer Price Index.

Don’t forget that there isn’t a limit on the value of pension savings that you can build up though!

The LTA covers any pension benefits you may have in all tax-registered pension arrangements – not just the Scheme. The rate of tax you pay on pension savings above your LTA depends on how the money is paid to you - the rate is:

  • 55% if you get it as a lump sum; or
  • 25% if you get it any other way, for example pension payments or cash withdrawals.

The charge can be applied in either of the two ways or a combination of both depending on how you take the excess benefits above the LTA.

For more information on LTA please see our fact sheet Tax Controls on Pensions or please contact us.

Need some help?

Head over to the factsheet on Tax controls on pensions for more information. If you have any questions, please visit the Contact details page.