Do you pay tax on your pension?

Your pension contributions (when you pay money into your pension pot) are tax-free. The government actually gives you tax back in the form of tax relief. As a result, the tax you'd normally pay goes into your pension savings.

You get a quarter of your workplace pension money tax-free, but you're taxed on the remaining three-quarters when you withdraw it for living expenses in later life. As a result, it's important to understand how tax works when taking money out of your pension - and how how you get your money affects the amount of tax you will pay.

In order to encourage you to save for your retirement, the government provides tax relief on the earnings you put into your pension pot. As a result, the tax you'd normally pay goes into your pension savings.

The Lifetime Allowance (LTA) relates to tax-privileged pension funds that can be accrued by a member during their lifetime before they are hit with the Lifetime Allowance tax. Currently, the standard Lifetime Allowance is £1,073,100 (2021-2022).

What you need to know

There is no limit on how much a person can receive - or 'crystallise' - from a registered pension scheme. The 'Lifetime Allowance' (LTA) limits the amount of tax-privileged pension funds a member can accumulate during their lifetime.

A member's LTA use is tested when they take certain benefits, and at certain other times (such as when they reach the age of 75 or when they die before 75).

Any benefits that are over the lifetime allowance charge will be applied to the value in excess.

Pension rules changed significantly on 6 April 2006, in particular regarding the maximum benefits payable under UK tax-approved pension schemes.

There is no limit to the number of tax-privileged pension funds an individual can accumulate during their lifetime – known as the 'Lifetime Allowance' (LTA).

The amount of LTA used by a member is tested at certain times (such as attaining the age of 75 or before the age of 75) and when certain benefits are taken.

If the members' benefits, along with any other benefits they have taken, exceed the LTA, a 'Lifetime allowance charge' is applied.