Tax Relief

The Government wants to encourage people to save for the future. So it gives you tax relief on the money you save in a pension as long as you don’t exceed:

  • The Annual Allowance which allows tax relief on a certain amount of money each year (currently £60,000)
  • The Lump Sum Allowance which relates to the amount of tax-free cash you can take from your RMPP (or other pension scheme) benefits. The maximum amount is £268,275.

What’s the Annual Allowance?

The Government looks at a period of time called the Pension Input Period, to see how much the value of your benefits (except for funds arising from Additional Voluntary Contributions) have increased (in excess of inflation as measured by the Consumer Prices Index).

If you paid Additional Voluntary Contributions, during the Pension Input Period, these contributions also count towards your Annual Allowance.

If you are thinking about the Annual Allowance, it’s helpful to know about:

Managing peaks: If you exceed the Annual Allowance in any tax year, you don’t necessarily have to miss out on tax relief. You can carry forward any unused Annual Allowance from the previous three years.

The Pension Input Period: This is the period of time the Government used to measure your Annual Allowance.  Different members may have different Pension Input Periods. Please get in touch if you want to know more.

Exemptions: Benefits you build up are normally subject to the Annual Allowance – except if you retire in serious ill health (which means where you have a life expectancy of less than one year) or you die.

What's the Lump Sum Allowance and Lump Sum Death Benefit Allowance?

The Lump Sum Allowance (LSA) sets a maximum amount of tax-free cash you can take out of your pension benefits. It covers all pension schemes you have – not just RMPP. The amount is currently £268,275. If you take more than this amount you’ll have to pay income tax on the extra.

The Lump Sum and Death Benefit Allowance (LSDBA) applies to lump sums covered by the LSA plus additional lump sums payable in circumstances such as death or serious ill health. The maximum amount is £1,073,100 across all pension schemes.

Tax rules can change from time to time and so these limits may change in the future.

If you don’t know which section you’re in, contact the Helpline (contact details are at the bottom of the page); or If you recieve an Annual Benefit Illustration the section is noted on the front page.