The Pension Fact File

Lifetime Allowance
The lifetime allowance was abolished on 5th April 2024 and was replaced with new allowances. There is now the lump sum allowance of £268,275, the lump sum and death benefit allowance £1,073,100 and the overseas transfer allowance £1,073,100. Non taxpayers section- The maximum you can contribute is £2,880 a year. Tax relief is added to your contributions, so if you pay £2,880, a total of £3,600 a year will be paid into your pension scheme, even if you earn less than this or have no income at all.

Non-taxpayer or earning less than £3,600
If you have no earnings or earn less than £3,600 a year, you can still pay into a pension scheme and qualify to receive tax relief added to your contributions up to a certain amount. The maximum you can contribute is £2,880 a year. Tax relief is added to your contributions, so if you pay £2,880, a total of £3,600 a year will be paid into your pension scheme, even if you earn less than this or have no income at all. This applies if you pay into a personal or stakeholder pension yourself (so not through an employer’s scheme) and with some workplace pension schemes – but not all. The way some workplace pension schemes give tax relief means that people earning less than the personal allowance (£12,500 in the 2025/26 tax year) won’t receive tax relief.

Money Purchase Annual Allowance
Once you begin taking taxable money out of your pension pot using pension freedoms, you may be subject to the money purchase annual allowance (MPAA). The MPAA reduces your yearly pension contribution allowance from £60,000 to just £10,000 in the tax year in which you trigger it and ongoing. It applies to all the money purchase pensions. If your first taxable withdrawal is part way through the tax year, the reduced allowance only applies from this date onwards. Contributions before the first withdrawal would be measured against the standard annual allowance of £60,000. Contributions from that date to the end of the tax year would be measured at the reduced rate. From the beginning of the next tax year, the reduced allowance (£10,000) applies for the whole tax year.

Annual Allowance
An annual allowance limits the amount someone can pay into pension schemes each year before they must pay income tax. The annual allowance is the maximum amount of pension savings an individual can make each year without an annual allowance charge applying. This includes pension contributions made by the individual, their employer, a company or a third-party. Individuals are subject to a tax charge on the amount of any contribution paid (personally, by their employer or a third-party) in excess of the annual allowance each year. The tax charge will be at the individual’s marginal rate of income tax. This also applies to the value of any benefit increase under a defined benefit or cash balance scheme over the annual allowance. If an annual allowance charge is due this will usually be dealt with through the individual’s self-assessment tax return. This amount is £60,000 for the tax year 20205/2026.

Carry forward
Carry forward allows unused annual allowance from pension input periods ending in the three previous tax years to be carried forward and added to the annual allowance for the current pension input period. The 2025/2026 tax year allows use of unused allowances from 2022/2023, 2023/2024 and 2024/2025.

Tapered Annual Allowance
This reduces the annual allowance for people with an adjusted income over £260,000 and a threshold income over £200,000.The annual allowance is reduced for individuals who have ‘adjusted income’ over £260,000 a year.

The annual allowance reduces by £1 for every £2 over £260,000. The maximum reduction is £50,000, this happens when ‘adjusted income’ is over £360,000.
The reduction does not apply to individuals who have ‘threshold income’ of no more than £200,000.

Pension tax relief
You can get tax relief on private pension contributions worth up to 100% of your annual earnings.

You’ll either get the tax relief automatically, or you’ll have to claim it yourself. It depends on the type of pension scheme you’re in, and the rate of Income Tax you pay.

There are two kinds of pension schemes where you get relief automatically. Either:

• Your employer takes workplace pension contributions out of your pay before deducting Income Tax or
• Your pension provider claims tax relief from the government at the basic 20% rate and adds it to your pension pot (‘relief at source’)

If your rate of Income Tax in Scotland is 19% your pension provider will claim tax relief for you at a rate of 20%. You do not need to pay the difference.

UK tax relief is also available on contributions made to certain types of overseas pension schemes.

If you pay Income Tax above 20% (England, Wales or Northern Ireland)-
You can claim additional tax relief on your Self Assessment tax return for money you put into a private pension of:

• 20% up to the amount of any income you have paid 40% tax on
• 25% up to the amount of any income you have paid 45% tax

If you pay Income Tax above 20% (Scotland)
You can claim additional tax relief on your Self Assessment tax return for money you put into a private pension of:

• 1% up to the amount of any income you have paid 21% tax on
• 22% up to the amount of any income you have paid 42% tax on
• 25% up to the amount of any income you have paid 45% tax on
• 28% up to the amount of any income you have paid 48% tax on