Contributions paid to additional pension benefits qualify for tax relief. They cannot exceed 100% of your taxable pay.
Lifetime Allowance
From 6 April 2006 to 5 April 2024 HM Revenue and Customs (HMRC) set a lifetime allowance limit. This is on tax free pension savings in all registered pension schemes.
The limit mainly affects high earners. For most people, it results in more tax relief to increase retirement benefits.
The Lifetime Allowance applies to all your pension savings, including those through extra contributions.
From 6 April 2024 the lifetime allowance was abolished. New allowances were introduced including the Lump Sum Allowance and the Lump Sum and Death Benefit Allowance.
Further information on these changes can be found in HMRC Pension Tax Manual (PTM) and on our Lump Sum allowances from 6 April 2024 webpage.
Tax free lump sums
HMRC will not allow you to withdraw a tax free lump sum and receive further tax relief by reinvesting it into a registered pension.
This is known as ‘recycling lump sums’ and could apply if the money is re-invested as a lump sum or in monthly payments.
This rule might affect you if you retire within 2 years of applying to buy extra benefits.
If you think this could affect you, discuss it with a financial adviser before proceeding.
Annual allowance
The annual allowance for tax year 2024/25 is £60,000.
This can reduce to £10,000 in certain circumstances - please refer to the HMRC Pension Tax Manual (PTM) for more information.
This reduction includes the NHS money purchase additional voluntary contributions (MPAVC) scheme.
The annual allowance is the maximum amount of tax free growth your pension savings can grow by in a tax year. This doesn’t include any State Pension.
Growth in the NHS Pension Scheme includes any additional pension or Added Years bought or being bought during that tax year.
If growth in all of your pension arrangements exceeds the annual allowance, you may incur a charge.