Annual and Lifetime Allowance

HM Revenue and Customs impose two controls on the value of pension savings you can have without having to pay extra tax. These controls are known as the Annual Allowance and Lifetime Allowance.

Breaking news - Spring Budget 2023

On 15 March the Chancellor announced that the annual allowance (AA) limit would increase to £60,000 from 6 April 2023. This is good news for pension savers as it means less members are likely to be affected by the limit. The changes to AA also include increases to the tapered and money purchase annual allowances that you can read more about below. 

It was also announced that the lifetime allowance limit would be removed from 6 April 2023. That means that anyone 'crystalising' their benefits after that won't need to test their total pension savings against the LTA (so no LTA tax will need to be paid to HMRC). Anyone retiring before 6 April 2023 will still need to be mindful of this however. Additionally, in the past the maximum tax free lump sum at retirement has also been linked to the LTA. From 2023 onwards the limit remains and will be frozen at its current value of £268,275.

The Annual Allowance is the amount your pension savings can go up in any one tax year before you have to pay an extra tax charge on it. You can read more about this in the FPS Annual Allowance Factsheet here, which has been produced by the LGA (not yet updated for changes imposed by the 2023 Spring Budget). 

The lifetime allowance is the total pension you can build up without being liable for a tax charge. If you go over the lifetime allowance you’ll pay tax on the excess, but only when you actually take your pension. You can read more about this in the FPS Lifetime Allowance Factsheet here, which has been produced by the LGA (not yet updated for changes imposed by the 2023 Spring Budget).