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How to explain pension tax changes in your communications

In April 2023, the government changed how pensions are taxed. Here’s some standard wording you can use to help you talk to your members about the changes.

This wording is free to use. I’d love to know what you do with it, so please feel free to send me an email.

Changes to how pensions are taxed and what it means for you

This affects how much can go into your pension:

  • in a year, known as the annual allowance
  • over your lifetime, known as the lifetime allowance
  • once you’ve started taking your defined contribution (DC) pension, known as the money purchase annual allowance.

Here’s what’s changed and how it might affect you.

Annual allowance

The total amount that can go into all of your pensions each year without paying extra tax, is called the annual allowance. This has increased from £40,000 to £60,000 a year.

If you build up pension savings in a defined contribution (DC) pension, your annual allowance is based on how much money you and your employer put into your pension.

If you build up benefits in a defined benefit (DB) pension, your annual allowance is based on how much the value of your pension increases over the year.

Lifetime allowance

The limit on how much can go into your pension over your lifetime is known as the lifetime allowance. Until April 2023, if you went over this amount you had to pay a tax charge. However, this charge was abolished in April 2023. The lifetime allowance itself isn’t officially abolished until April 2024, but no one will have to pay the tax charge for the tax year 2023-2024.

Tax-free cash

When you reach age 55 (age 57 from April 2028) you can take up to 25% of your pension as tax-free cash. There is a maximum amount that you can take as tax-free cash. For most people this is now set at £268,275. Any cash that you take from your pension after that is likely to be taxed. If the value of all of your pensions combined is worth more than around £1 million this might affect you.

Money purchase annual allowance

If you’ve already started taking money from one or more of your defined contribution (DC) pension pots you can now save up to £10,000 a year into another DC pension. Once you reach £10,000, you’ll start paying tax on the money that you save. Before April this amount was £4,000. This is particularly relevant for you if you are already using some of your pension savings but continuing to work and save into a different pension.

Tapered annual allowance

If you are a high earner, your annual allowance might be reduced. This is known as the ‘tapered annual allowance’. Before April 2023 the tapered annual allowance applied to anyone with total taxable earnings above £240,000 in a tax year. This has now gone up to £260,000. Total taxable earnings include any pension contributions made by you or your employer. The tapered annual allowance means that for every £2 of total taxable earnings above £260,000, your annual allowance will be reduced by £1. This particular tax limit is complex, so you might want to seek financial advice if you think you might be affected.

Things to think about

Check whether these limits affect you

Checking your payslips, pension statements or online pension accounts will help you understand how much you’re putting into your pension at the moment. If you know that you were close to the old annual allowance limit, you might be able to put more into your pension from now on. If you know that you were close to reaching the lifetime allowance, you might also be able to put more into your pension now. If you are taking some of your pension but also saving into a pension, you also might be able to put a little more in now. And if you are a high earner you may also find that you can now put a little more into your pension.

Think about what you’re aiming for

The retirement living standards help you picture what your life might be like once you stop working, and how much that lifestyle could cost you. If you know how much you’ve put into your pensions, and what it’s likely to be worth when you retire, you can use the living standards to see whether you’re on track for the lifestyle that you want. Find out more at

Get free guidance

If you are over 50 and have a defined contribution (DC) pension you can get free guidance from Pension Wise. The guidance is available face-to-face, or on the phone. Find out more at