As the Teachers’ Pension Scheme is a registered pension, it’s subject to tax rules and limits which are laid down by HM Revenue and Customs (HMRC).

HMRC introduced two pension allowances on 6 April 2006, one to restrict tax relief on pension growth and the other to restrict the benefits taken from a scheme, before giving rise to additional tax charges.

1) The Annual Allowance (AA) is the amount your pension can grow each year. If your AA is exceeded this gives rise to an AA charge.

Please note:

• The Finance Act is very specific as to who bears the liability for the payment of the AA tax charge. Section 237A(1) states:

  “The individual is liable to the Annual Allowance charge”

• In addition, HMRC has issued guidance in the event of inaccurate or indeed no data being available for a member to make an accurate assessment.

  The guidance in the Pension Tax Manual requires a member, who believes that they may be liable to an AA tax charge, to submit an estimate based on all of the information they have available. This must be done through their normal annual tax return, to be submitted no later than the 31 January, following the tax year in which the tax charge arose. They can then, at a later date, alter their tax return once accurate data has been provided.

• In order to assess your liability to an AA tax charge, you're required to measure the annual growth in all of your registered pension schemes, not just Teachers' Pensions. However, we can only provide you with the pension input amount in respect of your membership in the Teachers' Pension Scheme.

2) The Lifetime Allowance (LTA) was the maximum amount you can take in pension benefits during your lifetime from all pension schemes, before an additional tax charge is incurred. If the LTA was exceeded, you would have been subject to the LTA charge.

Abolition of Lifetime Allowance (LTA)

The LTA was abolished with effect from 6 April 2024 and replaced with three lump sum allowances, the Lump Sum Allowance (LSA), the Lump Sum and Death Benefits Allowance (LSDBA) and the Overseas Transfer Allowance (OTA).

The Lump Sum Allowance (LSA)

The LSA limits the total amount of certain tax-free lump sums that a member can take in their lifetime from all registered pension schemes. The following lump sums use up a member’s LSA:

• Pension Commencement Lump Sums (PCLS)
• Any tax-free element of Uncrystallised Funds Pension Lump Sums (UFPLS)
• Any tax-free element of Stand-alone Lump Sums (SALS)

The above listed lump sums also use up the Lump Sum and Death Benefit Allowance, so a member needs to have both allowances available for these to be paid tax-free.

It’s important to note that the Teachers’ Pension Scheme only pays Pension Commencement Lump Sums and not Uncrystallised Funds Pension Lump Sums or Stand-alone Lump Sums.

The Lump Sum and Death benefits Allowance (LSDBA)

The lump sum and death benefits allowance limits the total amount of tax-free lump sums that can be paid during a member’s lifetime and paid in respect of a member following death. Unlike the Lump Sum Allowance, it therefore includes tax-free Serious Ill Health Lump Sums and tax-free lump sum death benefit lump sums. The following lump sums use up a member’s LSDBA:

• Pension Commencement Lump Sums (PCLS)
• Any tax-free element of Uncrystallised Funds Pension Lump Sums (UFPLS)
• Any tax-free element of Stand-alone Lump Sums (SALS)
• Any tax-free element of Serious Ill Health Lump Sums (SIHLS)
• Any tax-free element of lump sum death benefits (except charity lump sum death benefits) paid in respect of the member

The Overseas Transfers Allowance (OTA)

The Overseas Transfers Allowance applies to transfers paid on or after 6 April 2024. The Overseas Transfers Allowance places a limit on the total amount of qualifying recognised overseas pension scheme (QROPS) transfers that can take place from 6 April 2024 onwards without incurring a tax charge. It operates separately from the Lump Sum Allowance and Lump Sum and Death Benefit Allowance. The Teachers' Pension Scheme only allows qualifying recognised overseas pension scheme transfers in very limited circumstances.

Benefits taken prior to 6 April 2024

Any benefits already taken before 6 April 2024 are accounted for when calculating the Lump Sum Allowance, Lump Sum and Death benefits Allowance and Overseas Transfers Allowance available. This includes those taken under the Lifetime Allowance regime before these allowances were introduced. The deduction that is now made for any benefits taken while the Lifetime Allowance was in place is usually 25% of the amount of the Lifetime Allowance used on 5 April 2024 unless a Transitional Tax-free Amount certificate has been provided.

Further information on the tax rules

The tax rules regarding pensions are becoming increasingly complex, further information available here:

• Lump Sum Allowances
• Annual Allowance
• Supporting information

We can't provide you with financial advice in relation to these changes and would suggest that you consult with an independent financial or tax advisor to go through how or if the changes will affect you.