Annual Allowance

One of the benefits of your pension is that it is tax free up to a certain limit. This is known as your annual allowance. Once you exceed your annual allowance, there are some tax implications you will need to consider.


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Changes to annual allowance 2023

Please be aware that the 2023 Spring Budget included plans to increase the annual allowance from £40,000 to £60,000 from 6 April 2023. If you receive a Pension Savings Statement from us in 2023, this will be for the 2022-2023 tax year when the £40,000 limit still applied. 

What is annual allowance?

One of the perks of putting money into any kind of pension scheme is that it’s tax-free… up to a point. The only downside is that there is a limit on how much you can save before HMRC starts to take its share. This limit is called your annual allowance (AA).

LGPS pensions only

Paying your tax bill

Parting with your hard-earned cash

You’re probably not be too thrilled about having to pay tax on your pension, but if you have received an annual allowance charge there’s no point making it more stressful than it needs to be. The following information will help you cut through the clutter when it comes to making the payment.

If you owe less than £2,000

If your annual allowance charge is less than £2,000, you should pay it directly to HMRC as part of a self-assessment tax return. The deadline for this is 31 January (the following year).

If you owe more than £2,000

If your annual allowance charge is more than £2,000, we can usually pay it on your behalf out of your pension fund. This is done through our Scheme Pays facility.

What is Scheme Pays?

Scheme Pays is a way of paying some or all of your annual allowance charges out of your pension savings. Rather than asking you to pay HMRC directly, we make the payment on your behalf and reduce your pension fund to cover the cost. This works in one of two ways:

Your annual allowance statement

Good news travels fast

If you receive a letter from us, which includes your annual allowance and Pensions Savings statement, it’s probably because you’re over your limit or very close. Please read the contents carefully, as it will outline exactly where you’re up to and what, if anything, you need to pay.

What to do next?

We understand that these types of letters can often leave you scratching your head. Unfortunately, as your pension administrators, we are not regulated to offer tax advice, which means we are limited in the support we can provide.

We can answer questions about the contributions listed on your statement or the Scheme Pays facility. We can also check your records if you think you have exceeded your annual allowance and haven’t received a letter. But if you do need advice on your personal tax situation, you must speak to a professional adviser.

Where to get tax advice?

If you don’t have a financial adviser or a professional tax adviser, websites such as may be able to help you find a suitable candidate. Personal recommendations are also worth considering. Alternatively, the links below include up-to-date information that you might find useful.

HM Revenue & Customs website

The Pensions Advisory Service (TPAS)

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