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

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 £40,000 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
  4. Your total pension savings from all pension arrangements exceeds £750,000 - see lifetime 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. For the current tax year the annual allowance is £40,000 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

This is the maximum amount of pension savings that you can build up during your lifetime without having to pay a tax charge when taking the benefits.

The lifetime allowance is currently set at £1,073,100 for the 2020/21 tax year. This is due to increase in line with inflation (using the Consumer Price Index) in future years. If your overall pension savings (excluding the State Pension) are above this amount when you take the benefits you will pay a tax charge on the excess.

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

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 £4,000.

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 £240,000.

If you exceed these limits your annual allowance is reduced by £1 for every £2 you are over the £240,000 limit, up to a maximum reduction of £36,000, leaving an annual allowance of £4,000.

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