Important tax information

This page provides important tax information. 

What is the Lump Sum Allowance (LSA)?

When you access your pension, you can usually take up to 25% of it as a tax-free lump sum.

Your ‘Lump Sum Allowance’ is the maximum amount of money you can take as tax-free lump sums from all the pensions you have. While you can still take out money over this allowance, you will need to pay income tax on it. The Lump Sum Allowance is £268,275. It will be higher if you have a protected lifetime allowance.

How much can I pay into my pension plan and still receive tax relief?

You can normally pay the equivalent of your annual salary into your company pension plan each year and still get tax relief. However, there is an Annual Allowance and if you go beyond this, you will incur a tax charge. The Annual Allowance is currently £60,000.

This allowance applies across all schemes you belong to, and includes all contributions paid by you or anyone else on your behalf – including your employer. 

You’ll have a reduced (‘tapered’) annual allowance if both of the following apply:

• your ‘threshold income’ is over £200,000 (your income excluding any pension contributions – unless they’re paid as a salary sacrifice by your employer)
• your ‘adjusted income’ is over £260,000 (your income added to any pension contributions you or your employer make).

If these apply to you, your annual allowance will drop by £1 for every £2 your adjusted income goes over £260,000. This is limited however – the minimum tapered annual allowance you can have is £10,000. So, if your income is over £360,000, including pension contributions, your annual allowance will be £10,000.

If you have pension benefits in a defined benefit or final salary scheme, they may also count towards your allowance.  You should ask your scheme administrator if you think this might apply to you.

I’ve started to take some of my pension benefits, can I still pay into a pension?

If you've flexibly accessed your pension and taken taxable income, you may have triggered the Money Purchase Annual Allowance (MPAA). If this applies, the amount you can pay into your pension and receive tax relief on could be limited to £10,000 a tax year, regardless of your earnings. You would also lose the option to carry forward any unused annual allowance from previous tax years.

You can use H M Revenue & Customs (HMRC) annual allowance calculator to check if you have to pay tax on your pension savings, or if you have any unused annual allowances that you can carry forward. For more information on annual allowances please visit Gov.uk.

How will my pension be taxed

You can normally take up to 25% of your funds as tax-free cash. The rest will be taxed at your marginal rate of income tax.

How to check whether you're likely to exceed the lump sum allowance (LSA)
To find out whether you're likely to exceed the lump sum allowance (LSA), you'll need to work out the total value of all your private and workplace pensions, excluding any State Pension entitlement.

The way you calculate this depends on the type of pension you have:

• For personal pensions, Self-Invested Personal Pensions (SIPPs), and defined contribution (money purchase) schemes, use the current value of your pension pot.
• For final salary or defined benefit schemes, multiply the annual pension payable by 20 and add any additional tax-free cash you're entitled to.

Once you've worked out the value of all your pensions, add them together and divide the total by four. This will give you an indication of whether you're likely to exceed the LSA.

If you've already started taking benefits from other pensions through an annuity, drawdown arrangement or lump sum withdrawals, you'll also need to take these into account when assessing how much of your LSA may already have been used.

If you have any questions about these allowances and what they mean for you, call our specialist helpline on 0345 070 8686. Call charges may vary. We may record and monitor calls.

This information is based on the rates and allowances that apply in the 2026/2027 tax year. Different rates and allowances may apply in other tax years.

Read Tax Year Rates and Allowances 2026/2027 to find out more about allowances which apply to saving for retirement.