Tax and your pension

Whether you’re still paying into your pension or planning for retirement, this page explains all the important information you need to know about paying tax.

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Tax relief

One of the benefits of your scheme is the tax relief you receive on your pension contributions if you’re a UK taxpayer.  

Each month, your contributions are deducted from your earnings before tax. This means you automatically get tax relief at your highest rate of tax. So, if you pay tax at a rate of 20%, every £1 you contribute only costs you 80p net.   

Annual allowance

Your pension is tax free up to a certain limit, known as your annual allowance. 

Your Annual Allowance (AA) is the total amount of pension savings you can make each year before you incur a tax charge.   

The standard annual allowance limit is £60,000. This is the maximum amount of money you can build up each year across all your pension schemes – including any workplace, personal or stakeholder pensions you may have (also including AVCs, APCs and added pension).  

Most people aren’t affected by the annual allowance because their pension savings don’t increase by more than £60,000 in a year. But depending on your circumstances (like being a high earner), you could be affected.

Tax on your retirement benefits

When you retire, your pension will be taxed, depending on what benefits you receive and their value:  

How is tax paid on my pension when I retire? 

Tax is automatically deducted from your pension payments each month. When you receive your first pension payment, a temporary tax may be applied if we don’t have your up-to-date tax code. So, you may initially pay more tax than you need for the current tax year. 

Once your pension is in payment, HMRC will notify us of your correct tax code. You will then receive a refund, as long as the tax code provided by HMRC is given in the same tax year and on a cumulative basis.  

You can also claim a refund for any tax you overpay by registering for HMRC online services or contacting HMRC directly

Tax on your pension when you die

One of the benefits of your workplace pension is that it provides financial protection to the people you care about in the event of your death – either in the form of a lump sum (death grant) or an ongoing income (survivor’s pension), which may be taxed.  

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