Contributions

Paying into a pension is a tax-efficient way to save
Play video

There are limits on how much you can save into a pension without incurring a tax charge: the annual and lifetime 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.

Lifetime allowance

The Lifetime Allowance charge was removed on 6 April 2023, and the lifetime allowance will be abolished completely from 6 April 2024.

Subject to any protection in place, there will be a monetary cap on tax-free cash of £268,275 (25% of the previous Lifetime Allowance) or 25% of the value of benefits if this is lower.

The lifetime allowance is the maximum amount an individual can take from all their registered pension schemes without incurring additional tax charges. This does not include the State Pension. A 55% tax charge was applied to amounts above this threshold withdrawn as a lump sum, or 25% if paid as a pension. The lifetime allowance for the 2022/23 tax year was £1,073,100.

If you have a previous defined benefit (final salary) pension, to calculate how much of the lifetime allowance this uses up, you need to multiply the pension by 20 and add any tax-free cash you choose to take. You will then need to add this figure to the combined fund value of any defined contribution pensions you have, to work out how much of the lifetime allowance you have taken up.

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

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 an annual allowance of £10,000.

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

Paragraph from New to AXA | Your Journey | AXA Pensions (axa-employeebenefits.co.uk)

If you are fortunate enough to have gross annual earnings in excess of £200,000, or you would like to find out more about any limits you may face with your total pension savings, you can find out more here.

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.

Find out more
Close