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Tax and pensions

Please note: Any references to tax are based on our current understanding of tax legislation which may change in the future.

How will my LGPS pension be taxed?

The income you receive from your LGPS pension will be treated like any other income and taxable in the normal ways in line with personal allowance limits.

The standard personal allowance is £11,850 per year (2018/19), which is the amount of income you can receive without paying any tax.

If you choose to take a cash lump sum from your LGPS pension, this amount will be free of any tax.

Advice on tax and pensions

If you chose to receive regulated pension advice, a pension specialist will make recommendations on the most tax-efficient way to access your LGPS and other pensions.

A pension specialist will:

  • Take into account information about your assets, income, debts and pensions
  • Identify if there are any Lifetime Allowance or Annual Allowance considerations
  • Review any scheme protections e.g. a guaranteed income and their tax implications
  • Make tailored recommendations based on all of the above
  • If you would benefit from Lifetime allowance protection, a pension specialist can complete the paperwork for you. Depending on the complexity of the circumstances, this may incur an additional charge.
  • If you have an Annual allowance challenge, a pension specialist will calculate the position and provide additional advice or guidance and tell you about the implications of the position.

Use Pension Pathway to find out if you could benefit from pension advice.

See the UK tax bands

The table below shows the tax rates you pay in each band in England and Wales.

Tax Bands

Taxable income (England and Wales)

Tax rate

Personal allowance

Up to £11,850


Basic rate

£11,851 to £46,350


Higher rate

£46,351 to £150,000


Additional rate

Over £150,000


The table below shows the tax rates you pay in each band in Scotland.

Tax Bands

Taxable income (Scotland)

Tax rate

Personal allowance

Up to £11,850


Starter rate

£11,850 to £13,850


Basic rate

£13,851 to £24,000


Intermediate rate

£24,001 to £43,430


Higher rate

£43,431 to £150,000


Top rate

Over £150,000


Lifetime allowance

The Lifetime Allowance is the limit on the amount of pension benefits that can be paid from your pension without triggering an extra tax charge.

The current limit is £1.03m (2018/19). This means that if your pension savings are close to or over £1.03m you may have to pay an additional tax charge.

The tax rates for savings over the lifetime allowance depend on how the money is paid to you.

  • 55% of any amount you take as a lump sum
  • 25% of any pension income or cash withdrawals

What counts towards your allowance depends on the type of pension pot you have.

  • For defined benefit pensions, like the LGPS, this is usually 20 times the pension you get in the first year plus your lump sum.
  • For defined contribution pensions, this is the money in your pension pots that you take an income from, however you decide to access it.

Annual allowance

Annual allowance is a limit on the amount of money that can be contributed to or built up in your pensions each year.

The allowance affects all of your pension pots, and includes you and your employer’s contributions, plus any others made on your behalf.

If you exceed the allowance limit, you’ll stop receiving tax relief on any contributions which exceed the limit and will pay an annual allowance charge. This charge will be added to your taxable income for the year.

What about my other pensions?

If you have any other personal, workplace or self-invested pensions, you can usually take up to 25% of your combined pension pots as tax free cash. You can do this one of two ways:

  1. Take up to 25% of your pot tax free and pay tax on the remaining 75% when you take it or purchase a retirement product
  2. You can leave your pension fund where it is, and take out chunks of money as and when you need them. 25% of each withdrawal would be tax free.