Tax information
The information below provides a summary of the current rules on pension tax limits. You can find more information about the different tax limits in the pension tax factsheets found on this page.
The Lump Sum Allowance (LSA) and Lump Sum and Death Benefit Allowance (LSDBA)
The LSA and LSDBA came into force from 6 April 2024, replacing the Lifetime Allowance. The LSA and LSDBA limit the amount of tax-free lump sum payments that can be paid from your registered pension arrangements.
The standard LSA is £268,275.
The standard LSDBA is £1,073,100.
Your LSA and LSDBA may be higher than the standard amounts if you have HMRC Protection. Please make sure you tell us about any type of HMRC pension protection you hold so we can update our records.
The majority of our members are unlikely to be affected by these pension allowances. Whether they affect you or not will generally depend on the total value of your pension savings and whether you’ve already taken any benefits from other pension schemes.
If you’ve already taken benefits from other pension schemes, your available allowances are likely to be lower than the standard LSA and LSDBA amounts. This is because your allowances will be reduced by the value of any relevant tax-free lump sum(s) which have been paid to you from a registered pension scheme on or after 6 April 2024. Your allowances will also be reduced if you’ve received benefits from a registered pension scheme before 6 April 2024 which used up some (or all) of your Lifetime Allowance.
Tax-Free Lump Sums on Retirement from Pace
When you retire from Pace you can choose to take up to 25% of the capital value of your benefits as a tax-free lump sum. Your remaining benefits will be paid to you as taxable pension income. We’ll need to check you have enough LSA and LSDBA available before we’re able to pay you any tax-free lump sum on retirement. If you don’t have enough available LSA or LSDBA, your tax-free lump sum will be restricted to the lower of the allowances you have remaining, and the amount permitted in the Pace Rules. You’ll then need to take your remaining benefits as pension income which will be taxed in the usual way.
If you don’t have any LSA or LSDBA available (because it has all been used up when you have previously taken benefits from other pension schemes), you will not be able to take a tax-free lump sum and you’ll need to take all of your benefits as taxable pension income.
Tax-Free Lump Sums on Serious Ill-Health Retirement and Death
If you’re retiring before you reach age 75 due to serious ill health reasons (i.e. where a doctor has confirmed that you have less than a year to live), you may be able to take all of your benefits as a tax-free lump sum. Any tax-free lump sum payable to you due to ill- health will need to be tested against your available LSDBA. If the lump sum is more than your available LSDBA, the excess amount will be taxed at your marginal rate of income tax.
If you die before reaching age 75, any tax-free lump sum death benefits payable to your beneficiaries will also need to be tested against your available LSDBA. Your Legal Personal Representative(s) (ie the administrator/executor of your estate) will be responsible for calculating your available LSDBA and notifying HMRC if your tax-free lump sum benefits are more than your LSDBA. If this is the case, your beneficiaries may be required to pay tax on the excess amount and HMRC will contact your beneficiaries directly to advise them of any tax due.
How are my available LSA and LSDBA reduced if I’ve previously taken benefits?
Your available LSA and LSDBA will depend on whether you’ve previously taken any pension benefits and are reduced by:-
- The value of any tax-free lump sum benefits you’ve already taken from other registered pension arrangements on or after 6 April 2024; and
- The value of any benefits you’ve already taken from other registered pension arrangements between 6 April 2006 and 5 April 2024; and
- The value of any pensions you may have started to receive before 6 April 2006.
If you’ve accessed benefits from another scheme(s) between 6 April 2006 and 5 April 2024, we’re required to assume you took part of your benefits (25%) as a tax-free lump sum and, in most cases, we’ll deduct 25% of the value of the LTA you used up from your available LSA and LSDBA (the standard calculation). However, if you accessed pension benefits from another scheme before 6 April 2024 and you took less than 25% of these benefits as a tax-free lump sum, you may be able to apply to any of your registered pension schemes and ask them to provide you with a Transitional Tax-Free Amount Certificate (TTFAC). You can only apply for a TTFAC provided you haven’t yet taken a lump sum benefit from any of your pension arrangements on or after 6 April 2024.
If you have a TTFAC, the values shown in the certificate will be used to calculate your available LSA and LSDBA instead of the standard calculation noted above. HMRC have stated that most members won’t need to apply for a TTFAC but if you think this may be relevant to you, we suggest you speak to a regulated financial adviser as a first step.
The Annual Allowance (AA)
This is the total amount that can be paid into all of your pension schemes each year without you having to pay extra tax. For most people, the Annual Allowance is £60,000 but it might be lower if you’re a high earner.
If you build up pension savings in a defined contribution (DC) scheme such as Pace DC, your Annual Allowance is based on how much money you and the Co-op put into your pension. If you have benefits in a defined benefit (DB) scheme, your Annual Allowance is based on how much your DB pension increases in value over the year.
You’ll start to pay income tax at your marginal rate on any pension savings you make which are more than the Annual Allowance.
The Money Purchase Annual Allowance (MPAA)
If you’ve already started taking money from a DC pension you can save up to £10,000 a year into another DC scheme without paying extra tax. Once you reach £10,000, you’ll start paying income tax at your marginal rate on the money you save.
This is relevant for you if you’re already using some of your pension savings and continuing to work and save into a different pension at the same time. Your pension scheme administrator will let you know if you’ve triggered the MPAA.
Taking cash from your DC Pension
Legal & General’s tax calculator tool has been developed to help pension scheme members understand the tax implications and complexities of cashing in retirement savings from a DC scheme (like Pace DC). The tool will help you consider the amount of tax due when taking your money, whether you're taking all your savings in one go or as smaller amounts over multiple years.
This tool is for general guidance only, to help you understand how much tax you might pay. It is not intended to be used as personal advice. The tool only shows possible outcomes based on the information you enter and these calculations are based on assumptions. The tax you actually pay at retirement may differ.
Check out L&G's Tax Calculator here
Financial Advice
Pension taxation is complicated. If you think you may be affected by the tax limits, you should consider getting independent financial advice. You can find an adviser in your area who is regulated by the Financial Conduct Authority by searching for “Find a retirement adviser” on the MoneyHelper website: https://www.moneyhelper.org.uk/. You should check the specialist advice areas of any adviser, as well as the cost of their advice, before appointing them.