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Annual Allowance / Lifetime Allowance

Whilst payments to an employer pension scheme attract tax relief, there are limits with regard to the amount of benefits that can accrue each tax year and when benefits are taken at retirement.  In summary:

Annual Allowance

You make contributions to an employers scheme which are tax-free. These contributions are used to build up your pension savings. The Annual Allowance (AA) is the maximum amount of pension savings you can build up each year before you get a tax charge.

The standard AA is currently £60,000 per tax year. If you build pension savings over this you may incur a tax charge.

If you’re a high earner, you’re likely to have a Tapered Annual Allowance or if you have started taking any USS Investment Builder savings (or any other defined contribution savings) you may have a Money Purchase Annual Allowance (MPAA).

The AA applies to pension savings you have built up in the University pension arrangements and in any other pension schemes. For more information Who must pay the pensions annual allowance tax charge - GOV.UK (

Lifetime Allowance

The rate of the tax you pay on pension savings above the lifetime allowance depends on how the money is paid to you and when you took your pension savings.

If you took your pension before 6 April 2023, the rate is:

  • 55% if you get it as a lump sum
  • 25% if you get it any other way, for example pension payments or cash withdrawals

If you took your pension on or after 6 April 2023, there is no lifetime allowance charge. This applies if you took it as a lump sum or any other way, for example pension payments or cash withdrawals. Instead you’ll pay Income Tax on some or all of the lump sum. Your pension provider will take off the charge before you get your payment.

More information

USS and the NHS have also provided detailed information on these changes and the options which are available to USS or NHS  members who may be affected by them: