Contributions

Paying into a pension is a tax-efficient way to save
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There are limits on how much you can save into a pension without incurring a tax charge: the annual allowance and the tax-free lump sum allowances.

For most people the limits will not have an impact. However, if any of the following apply, you will need to consider the tax limits carefully:

  1. You’re thinking about taking any of your Account as a taxable lump sum payment or start receiving income from a drawdown arrangement but are not planning to retire from work - see money purchase annual allowance.
  2. You’re thinking about paying in £60,000 or more over one tax year - see annual allowance.
  3. You have a high gross annual income (above £200,000 p.a.) - see tapered annual allowance.

If you think you are impacted by these allowances, please contact the AXA pensions team.

Annual allowance

The annual allowance is the maximum amount of money both you and AXA can pay into your pension each tax year. This includes any contributions you make to other pension schemes (i.e. if you have a personal pension plan). If you go above the annual allowance, you will have to pay a tax charge on the excess. Since the spring budget 2023 the annual allowance is £60,000 each tax year for most people.

You can carry forward unused annual allowance from previous years. This is useful if you have one year where you want to make a one off, large payment to your pension, for example, if you are made redundant and choose to put some of your redundancy pay into your pension. If you need to know more about this, please contact the AXA Pensions Team.

Tapered annual allowance

There is a special tapered annual allowance for high earners. This will only apply to you if your taxable income for the year is over £200,000 and your taxable income plus the pension contributions, paid by you and your employer, are over £260,000.

If you exceed these limits your annual allowance is reduced by £1 for every £2 you are over the £260,000 limit, leaving a minimum annual allowance of £10,000 when your income reaches £360,000 or over.

Adjusted income is taxable income, plus pension contributions, including those from your employer. The government website has more information on how to calculate income for the tapered annual allowance at www.gov.uk/guidance/pension-schemes-work-out-your-tapered-annual-allowance

Money purchase annual allowance

The maximum amount of money both you and AXA can pay into your pension each tax year is known as the annual allowance. If you take money out of a money purchase pension (for example as a taxable cash lump sum or as income from a drawdown arrangement, but not to buy an annuity), you will have a reduced annual allowance. This is known as the money purchase annual allowance (MPAA).

Please note that the money purchase annual allowance (MPAA) for the current tax year is £10,000.

For more information about drawdown, cash lump sums and annuities, go to the retirement options section of the site.

Lifetime Allowance and the new tax free lump sum allowances

The Lifetime Allowance (LTA) charge was removed on 6 April 2023, and then the LTA itself was abolished completely from 6 April 2024.

From 6 April 2024, there are new limits on the total amount of tax-free lump sums you can receive during your lifetime and a separate limit on the total tax-free lump sum amounts that can be paid during your lifetime and on death combined. These are the Lump Sum Allowance and the Lump Sum and Death Benefit Allowance.

The lump sum allowance is the maximum amount of money you can take during your lifetime from all your pension schemes as tax-free cash. The standard lump sum allowance is £268,275 and effectively this hasn’t changed from 2023/24, as it amounts to the same as 25% of the previous lifetime allowance. 

The standard lump sum and death benefit allowance is £1,073,100 and is the limit covering most tax-free lump sums paid on death, serious ill health and those paid during a members lifetime. If you think you maybe impacted by this limit then please contact the AXA Pensions Team, as you may wish to investigate having your lump sum death in service benefit provided by our Excepted life assurance arrangement.

More information can be found here - Find out the rules about Individual Lump Sum Allowances - GOV.UK

You might have the option to apply to protect your pension from these new allowances through lifetime allowance protections, to find out more go to www.gov.uk/guidance/pension-schemes-protect-your-lifetime-allowance.

Please note the deadline for applications is 5 April 2025.

Important note: If you have previously applied for any form of protection from HMRC, please contact the AXA Pensions Team immediately.

Want to change your contributions?

The contributions calculator shows you how much AXA will pay in for different contribution levels, and how much you receive in tax relief.

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