Pension tax limits

A simple summary of tax allowances and how they could affect your pension savings.

Tax and your pension

Tax and tax allowances on your pension savings can be complicated. It’s important to know the basics, so you understand how this might affect your pension and how you save for the future.

So here’s a simple explanation of the main pension tax allowances you should know about, and a brief summary of how they could affect you and your pension savings.

A tax bill

Active members

Increasing your pension savings with tax relief

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. 

A play button in blue

Video: Understanding tax relief

Watch this short video to learn more about tax relief. 

Retired members

All pensions are subject to income tax, including your State Pension, in accordance with HMRC guidelines.

We are only able to use tax codes sent by HMRC and are unable to make any changes without their instruction. If you have a query on the tax code we have for you, please get in touch with HMRC directly on 0300 200 3300, quoting your National Insurance Number and the tax reference of 083/BRX1.

If your circumstances change you should let HMRC know in case this affects the amount of tax that you need to pay.

All members

Tax allowances affecting pension savings
Current tax allowances

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 was the maximum amount you could save into all your pensions throughout your working life before you had to pay tax.  It affected those with the largest pension savings. For the tax year 2023/2024, it was set at £1,073,100. This was abolished in April 2024 and replaced with Lump Sum Allowances.

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.

The LSA is the maximum you can take as a tax free lump sum when you take your RPS pension. You may be able to take up to 25% of your pension benefits as a lump sum, tax-free. This is up to a maximum of £268,275 (unless you have a higher protected amount).

gov
Gov.uk

For the latest tax allowances visit the government website.

Going over the Annual Allowance

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. 

Videos and more information about tax and your pension

You can learn more about the Annual and Lump Sum 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.

Understanding the Annual Allowance (AA)

Understanding the Tapered Annual Allowance (TAA)
Understanding the Money Purchase Annual Allowance (MPAA)

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