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Know your limits

Remember, tax treatment depends on your individual circumstances and can change.

Annual allowance

The government has set a limit on the amount of pension contributions you can make each year before you're taxed. This is called the annual allowance. The annual allowance for the 2022/23 tax year is £40,000, which means you could contribute £40,000 before a tax charge may apply.

If however, you have taxable income for a tax year greater than £240,000, you'll have your annual allowance for that tax year restricted. This means that for every £2 of income you have over £240,000, your annual allowance is reduced by £1. Your reduced annual allowance is rounded down to the nearest whole pound.

The maximum reduction will be £36,000, so if you have an income of £312,000 or more you'll have an annual allowance of £4,000. If you're caught by the restriction, you may have to reduce the contributions paid by both you and/or your employer or an annual allowance charge will apply.

We recommend you speak to a financial adviser for more information on this legislation.

If you've already taken some of your pension savings, your future pension contribution limit may be restricted to the money purchase annual allowance.

Money purchase annual allowance

 What is it?

The money purchase annual allowance (MPAA) is lower than the annual allowance and it may apply if you choose to flexibly access your retirement savings after 6 April 2015.

The government introduced the MPAA to make sure there's no room to abuse the tax relief that can be claimed on any new pension contributions by those who have taken some or all of their pension savings.

 How does it work?

If you choose to access your pension savings flexibly, certain payments will trigger the MPAA. This means your annual allowance for contributions into defined contribution arrangements would be reduced from £40,000 to £4,000 a year.

 What triggers the MPAA?

  • If you choose to take an income from a flexi-access drawdown plan set up from 6 April 2015.
  • Taking a full or partial cash lump sum withdrawal from your account.
  • Taking an income above the maximum limit from an existing capped drawdown plan.

 What won't trigger the MPAA?

  • Taking your 25% tax-free cash sum.
  • Cashing in small pots.
  • Taking an income from a capped income drawdown plan that's within the maximum limits.
  • Additional designation from an existing capped income drawdown plan.
  • Buying a lifetime annuity.

 What do I need to do if the MPAA is triggered?

We'll let you know within 31 days of the MPAA being triggered.

You'll have 91 days to inform all pension plans you're contributing to that the MPAA has been triggered. If you join any new pension plans, you'll have a responsibility to let them know.

 What about defined benefit pension plans?

If you're a member of a defined benefits pension plan and you've triggered the MPAA, the £40,000 annual allowance still applies to your total contributions/accrual.  However, within your total £40,000 annual allowance, the maximum you can contribute to any defined contribution plans will be £4,000 before a tax charge applies.

We recommend you speak to a financial adviser for more information or if you think this applies to you.

Lifetime allowance

There's a limit to the amount you can have built up in all of your pension plans when you start taking your pension savings. It's set by the government and it's called the lifetime allowance.

The lifetime allowance for 2022/23 is £1,073,100. If you exceed this limit, you may be subject to a lifetime allowance charge.

Keep us up-to-date

Keep us up-to-date with any changes that could affect your retirement plans.

If you decide to change your retirement age, let us know. If you're invested in a Lifestyle Strategy, we'll make sure your money is invested in the right part of the strategy.

Did you know?

If you die before you take any or all of your pension savings, your savings could be paid to one or more beneficiaries of your choice. If you've not chosen beneficiaries or would like to change your beneficiary details you can complete the form online or download and print a paper form.

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0370 850 1991