Tax and the LGPS

HM Revenue & Customs (HMRC) governs pensions savings. There are controls on the amount of contributions you can make whilst still receiving tax relief. There are two main allowances for pension savings - an annual allowance and a lifetime allowance.

Annual Allowance

The amount of your pension savings that benefits from tax relief is limited to an annual allowance, currently £40,000. This applies to pension savings in:

If you save more than this amount you may have to pay a tax charge on the excess.

If you're already taking a pension using 'flexible drawdown' the amount of your annual allowance will be reduced.

LGPS Annual Allowance factsheet.

Lifetime Allowance

The lifetime allowance applies to any pension savings you have in:

  • a registered pension scheme
  • an overseas pension scheme that qualifies for UK tax relief for either you or your employer on or after 5 April 2006

The lifetime allowance is currently £1.25 million. Most people won't have to pay the lifetime allowance charge.

Please note: From April 2016 the lifetime allowance will reduce to £1 million.  HMRC have prepared a factsheet which you might find useful.

The lifetime allowance applies even if you're in a pension scheme that you don't make payments into - for example if you're in a workplace pension that only your employer makes payments into.

Further HMRC guidance on Annual and Lifetime Allowance can be accessed on the HMRC website.

 LGPS Lifetime Allowance factsheet.