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Annual Allowance / Lifetime Allowance

Paying into a pension arrangement, which is approved by Her Majesty’s Revenue and Customs (HMRC), such as the Plan, allows you to benefit from certain tax efficiencies as you save for your retirement.

However, HMRC sets a limit on how much you can save in a registered pension arrangement each tax year without incurring a tax charge. This is called the Annual Allowance.

However, HMRC sets a limit on how much you can save in a registered pension arrangement each tax year without incurring a tax charge, as well as a limit on the total amount you can have in all your pension arrangements without incurring a tax charge. These limits are called the Annual Allowance and the Lifetime Allowance.

Annual Allowance (AA)

Any pension savings over the AA attract a tax charge

For most people, their AA for 2022/23 will be £40,000. However, if you are a high earner (e.g. with total taxable earnings above £200,000 p.a.), your AA could be reduced, to a minimum of £4,000.

If you have already flexibly accessed benefits from a defined contribution (DC) arrangement, a Money Purchase Annual Allowance (MPAA) of £4,000 could apply.

Most people will not have exceeded the AA, but it is important that you understand how your AA is calculated so you can avoid paying a tax charge.

You can read more about the AA on the HMRC website at: https://www.gov.uk/tax-on-your-private-pension/annual-allowance - This link opens in a new browser window

Pension Savings Statements

The pensions team issues pension savings statements in the Autumn to members who have saved more than the standard AA, which is £40,000 for 2021/22.

The pensions team will also issue a Money Purchase Pensions Saving Statement to anyone who has told the Plan that they are affected by the MPAA. If you have been issued with a certificate confirming that you are now affected by the MPAA, please tell us by uploading a copy of the certificate here so that we can issue you with a Money Purchase Pensions Saving Statement each year.

You can read more about the pension savings statement on our website at: https://www.pearson-pensions.com/pension-savings-statement/

Need more help?

WEALTH at work

We have appointed WEALTH at work, leading independent financial guidance specialists, to operate a free dedicated telephone helpline to answer any questions you may have about your pension savings statement.

This call will provide you with guidance and help you decide if you may have incurred an Annual Allowance tax charge, however this cannot be constituted as advice. WEALTH at work are able to provide you with personal financial advice but you will be charged.

Call 0800 0931462 to speak to a member of the WEALTH at work guidance team.

HMRC website

HMRC have created a pension savings AA calculator to help you work out your AA and whether you have a tax charge.

The calculator will work out:

  • your available AA (including any Carry Forward amount)
  • your available (MPAA (if applicable to you)
  • the amount of your pension savings on which tax is due (if applicable)
  • your unused 2020/21 AA (if applicable).

You can access the HMRC AA calculator at: https://www.tax.service.gov.uk/pension-annual- allowance-calculator - This link opens in a new browser window

Lifetime Allowance (LTA)

The LTA is the total value of any pension savings (excluding your state pension) that you can have at retirement without incurring an additional tax charge.

The LTA has been frozen at £1,073,000 for the remainder of this Parliament. If your pension savings are higher than this then you will have to pay tax on the excess, currently 25% if used to provide a taxable income or 55% if taken as a lump sum.

You are assessed against the LTA when you take your benefits. Your Plan benefit statement shows the percentage of the LTA that your benefits in the Plan currently represent.

If your pension at retirement, from all sources, exceeds the LTA in force at that time, it will be restricted to the LTA under the Rules of the Plan, unless you request otherwise.

You can read more about the LTA on the HMRC website at: https://www.gov.uk/tax-on-your- private-pension/lifetime-allowance - This link opens in a new browser window.


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