Tax & Savings

Paying into a pension scheme is a tax-efficient way of saving for your future with the help of your employer who will contribute to your savings pot too. A key benefit of saving through a pension is that your contributions may also receive tax relief.

This means, if you’re a basic-rate tax-payer, for every £10 you pay it only costs you £8, as £2 is tax relief. Or if your income is taxed at the highest rate, for every £10 you pay it costs you £6.00 as £4.00 is tax relief.

As your contributions are taken from your gross pay (before any tax is deducted) by your employer it means you get the tax relief directly in your pay rather than having to go to HMRC separately.

If you do not pay income tax, you will be unable to benefit from this tax relief through your TPT Scheme.

Your TPT savings are invested. You don’t have to pay tax on the investments available through your TPT Scheme. However, if you hold savings outside of a pension scheme or ISA, you may have to pay tax on any gains you receive from your investments.

Limits and allowances

There are certain limits to these tax incentives – these are the Annual Allowance and Lifetime Allowance. If you have built up a lot of savings, or you have a high income, it’s worth making sure you understand how you might be affected. You can find out more about tax and your pension on the following sites:

Annual Allowance

This is the limit on how much can be saved into your pension(s) in a tax year (which runs from 6th April to 5th April), without paying a tax charge. This limit applies to the total of your and any employer contributions.

If you earn less than £200,000 the Annual Allowance is currently £40,000 (as at 6 April 2020). That means you and your employer can pay up to a total of £40,000 into your retirement savings during the tax year and you will still receive tax relief on the amount you pay.

If you earn over £200,000, you might be subject to the lower ‘tapered Annual Allowance’. In this case, the more you earn the lower your annual allowance.  If your total earnings are £312,000 or more, you will have an Annual Allowance of £4,000, which will not reduce any further.

You can find out more about this on the Government’s website

This limit applies across all pensions you’re paying into. So, if you’re paying into more than one, you’ll need to add up all your pension contributions to determine whether you’re paying more than the Annual Allowance that applies to you.

Money Purchase Annual Allowance

The Money Purchase Annual Allowance (MPAA) is a reduced Annual Allowance of £4,000 that will apply to you if you: 

  • receive a payment from another defined contribution arrangement using flexible options, or 
  • receive a payment from a 'decreasing' lifetime annuity. 

If this applies to you, the pension provider that pays you either of the above options should provide you with a statement informing you that the MPAA applies to you. It’s then your responsibility to tell us that the MPAA should be applied.

What happens if I go over the Annual Allowance limit?

You may be subject to a tax charge. This is based on your marginal rate of income tax, and the charge is on the amount by which you’ve exceeded the £40,000 limit or your individual lower tapered Annual Allowance by.

Did you know?

You may be able to carry forward any unused allowance from the previous three tax years to the current tax year.

Lifetime Allowance

This is the total amount of retirement savings you can build up without getting extra tax charges. It applies when you come to take your savings.

It’s currently set at £1,073,100 (from April 2020). If your savings from all your pension schemes (but not the State Pension) add up to more than that amount, you could be subject to an additional tax charge.

Each time you take money out of a pension scheme (as a lump sum or a regular payment), the amount of money you’re taking is compared with your remaining Lifetime Allowance. If the total of all amounts you have taken out from your pension(s) exceeds £1,073,100, there will be additional tax to pay on the excess.

You’ll receive a statement from the Scheme telling you how much tax you owe if you go over the Lifetime Allowance and the tax will come out of your retirement savings before you start getting your pension.

The Lifetime Allowance has lowered quite a bit over the last few years, and so the Government has brought in some ways to protect it.

If your total pension savings exceeded £1 million on 5th April 2016, you can still apply for Individual Protection 2016 and Fixed Protection 2016.

Go to the Government’s website to find out if you qualify and, if you do, how to apply for protection.

Not registered yet?

If you haven't registered for your Retirement Savings Account yet, click here to find out how you can do it