Tax and your pension
The money you pay into your pension arrangements usually gets tax relief. That means some of the money that would normally have gone to the Government in tax, goes towards your pension instead and helps to increase your savings.
However, there are other tax charges that may apply. Please select from the content list below to find out more.
All of these tax allowance limits are subject to change. Visit gov.uk/tax-on-your-private-pension for the latest updates.
The Annual Allowance (AA) is the total amount you can pay into all of your pension arrangements each tax year before tax will be charged.
It is currently £60,000.
You are responsible for letting HMRC know if you exceed the Annual Allowance. This can usually be done via self-assessment.
If your pension savings in the Magnox Pension Scheme are greater than either the AA or the Money Purchase Annual Allowance (MPAA), then we will send you a Pension Savings Statement (PSS) that will detail the benefits savings for the relevant period.
Your Annual Benefit Statement (ABS) will also give you an indication of how much of the AA you have used in respect of your savings in the Scheme. However, you will need to factor in the amount of savings you have built up in any other pension schemes that you are a member of separately.
You can carry forward any unused Annual Allowance for up to 3 years.
If you are liable for an Annual Allowance (AA) tax charge of £2,000 or more, you can elect for the Magnox Group to pay some, or all, of the charge on your behalf, rather than you pay it directly. Please see the information on Scheme Pays for more details.
You can find more information about tax on the MoneyHelper website.
This is the total amount you can pay into any defined contribution pension arrangements each tax year before tax will be charged.
It is currently set at £10,000.
The Money Purchase Annual Allowance (MPAA) only comes into effect if you have already taken some of your defined contribution savings as cash or a short-term annuity from a flexi-access drawdown fund, cash from a pension pot (‘uncrystallised funds pension lump sums’) or if you have taken more than the limit from a capped drawdown fund.
You can find more information about tax on the MoneyHelper website.
Your Annual Allowance (AA) will be tapered if you are a high earner and:
- your ‘adjusted income’ (your taxable income plus your Pension Input Amount) is £260,000 or more and
- your taxable income is over £200,000.
With the TAA for every £2 of adjusted income over £260,000, your Annual Allowance reduces by £1, down to a possible minimum of £10,000.
The maximum AA remains at the standard limit of £60,000 (see the Annual Allowance above for more details).
If your total taxable income is over £200,000, you should check if the Tapered Annual Allowance applies to you.
You can find more information about tax on the MoneyHelper website.
If you are an active member (i.e. still paying in) and are liable for an Annual Allowance (AA) tax charge of £2,000 or more, you can elect for the Magnox Group to pay some, or all, of the charge on your behalf, rather than you pay it directly. This is known as Scheme Pays.
In this instance we record the amount of AA charge paid as a notional negative amount and arrange for this to be paid on your behalf.
We then charge you interest on the amount of tax paid each April. This is done up until the time you retire/transfer, at an interest rate set by the Scheme Actuary.
When you retire, the total amount due, will be deducted from your benefits. How this is done depends on whether or not you have an AVC pot, as explained below.
- If you have an AVC pot
If you have an AVC pot and you opt for the Scheme to pay some or all of your AA charge, then it will be taken from your AVC pot at the time it is paid to you.
- If you do not have an AVC pot
If do not have an AVC pot and you opt for the Scheme to pay some or all of your AA charge, then the benefits that you get when you retire/transfer will be reduced in order for Scheme to recover the tax paid on your behalf.
If you’re an active member of the SLC reformed section, the principles explained here may apply primarily to the Final Salary element of your whole benefits (Final Salary + CARE). The Trustees will monitor this approach to ensure it remains suitable.
For more information about the Annual Allowance, including how to know if you might exceed it, and what to do next, select Annual Allowance from the contents list above.
If you are interested in using Scheme Pays to pay an AA charge, please contact the Scheme administrator, Railpen.
You can also find more information about tax on the MoneyHelper website.
Historically, the Lifetime Allowance (LTA) was the maximum amount you could build up in all of your registered pension savings throughout your working life before you had to pay additional tax.
It was abolished from 6 April 2024.
With the abolition of the LTA there is no limit on the amount of pension savings you can build up. However, lump sum limits or allowances have now been introduced, which affect how much can be paid in cash or transferred without tax charges.
This includes the Lump Sum Allowance (LSA) which for most people limits the tax-free cash or lump sum you can receive from all your pensions to £268,275 (the amount being the same as 25% of the LTA at abolition). If you have an LTA protection, you may have a higher allowance.
We've summarised the lump sum allowances below.
For more detailed information please visit gov.uk/tax-on-your-private-pension or the MoneyHelper website.
- The Lump Sum Allowance (LSA)
The Lump Sum allowance (LSA) is a cap on the amount of tax-free lump sum you can receive from all your registered pension arrangements.
The standard LSA is £268,275. If you have an LTA protection, you may have a higher allowance.
If the only pension arrangement you are a member of is the Magnox Pension Scheme, you only need to consider whether the total tax-free lump sum you want to take from the Scheme is more than your available LSA.
If you have previously taken pension benefits from either the Magnox Pension Scheme or another scheme, it will be taken into account and will reduce the available LSA for future retirements.
- The Lump Sum and Death Benefits Allowance (LSDBA)
The Lump Sum and Death Benefits Allowance (LSDBA) is a cap on the tax-free lump sum that can be paid to, or in respect of, a member of a registered pension scheme.
If the value of lump sum death benefits means that the LSDBA will be exceeded, the excess may be taxed at the marginal rate of income tax of the person receiving it.
The standard LSDBA is £1,073,100.
If you have an LTA protection, you may have a higher allowance.
- Overseas Transfer Allowance (OTA)
This only applies to transfers out to a Qualifying Recognised Overseas Transfer Scheme.
The OTA limit will be £1,073,100, unless a valid LTA protection is held.
If the transfer value exceeds the OTA, there will be an overseas transfer charge (OTC) of 25%.
