Pension tax limits
A simple summary of tax allowances and how they could affect your pension savings.
The great advantage of saving for retirement in a pension, is that some of the money that would normally have gone to the government in tax, goes towards your pension instead and increases your savings.
You can put as much money as you want into your pension, but there are limits on the amount of pension savings that can benefit from tax relief each year, and over your lifetime, before you have to pay tax. You can read more about these limits under tax allowances below.
Watch this short video to learn more about tax relief.
The AA is the limit on your pension savings that can benefit from tax relief each year. The most you can save tax-free towards all your pension arrangements in a single tax year, is the lower of either 100% of your earnings, or the amount the AA is set at for that tax year. The AA for 2023/24 is £60,000.
The LTA is the maximum amount you can save into all your pensions throughout your working life before you need to pay tax. It affects those with the largest pension savings. For the tax year 2023/2024, it was set at £1,073,100. You have to pay tax on any pension savings you have that are over the LTA limit. The amount of tax you owe will depend on your income tax rate, rather than the LTA charge that was in place before 5 April 2023.
The TAA is a lower Annual Allowance and may affect you if your taxable income is over £200,000.
The MPAA is currently set at £10,000 and may be measured against any DC contributions you make.
If your pension savings in the Railways Pension Scheme are greater than the AA, or the MPAA applies and you exceed it, then we will send you a Pension Savings Statement (PSS) that will detail how much of the AA you have used.
You can apply to carry forward any AA that you haven’t used from the previous 3 tax years to the current tax year. This rule can be used to make occasional top-ups to pension savings without having to pay an extra AA charge.
You can learn more about the Annual and Lifetime Allowances in the Read as You Need guides.
You can also watch series of short videos on tax below or watch these videos in the video library.