Tax information
Changes to Pensions Taxation from 6 April 2024
From 6 April 2024, the Lifetime Allowance (LTA) no longer applies when you take your pension benefits. Instead, new allowances apply when you take a tax-free lump sum on retirement (including retirement due to serious ill health), or when a tax-free lump sum is payable to your beneficiaries on your death.
The new allowances relating to tax-free lump sum benefits are:
- The Lump Sum Allowance; and
- The Lump Sum and Death Benefit Allowance.
There is also a new allowance for members wishing to transfer their pension benefits overseas.
There have been no changes to the Annual Allowance or the Money Purchase Annual Allowance.
You can read more about the pension tax allowances below. The pensions tax factsheets are also being updated with further information and will be added to this page in due course.
The Lump Sum Allowance (LSA) and Lump Sum and Death Benefit Allowance (LSDBA)
The LSA and LSDBA are limits on the amount of tax-free lump sum payments that can be made 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.
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.
Tax-Free Lump Sums on Retirement from Pace
When you retire from Pace you can choose to take part of your benefits as a tax-free lump sum. 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 any LSA or LSDBA available then in most cases, you would not be able to take a tax-free lump sum on retirement.
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.
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), any tax-free lump sum payable to you 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. If the lump sum death benefits are more than your available LSDBA, your beneficiaries may be required to pay tax on the excess amount. If this is the case, 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’re only eligible to apply for a TTFAC the first time you access pension benefits 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.
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.