Tax limits on my pension.

The Scheme is registered with HMRC, which means you receive certain tax advantages in exchange for limits on the amount of pension you can build up without paying a tax charge. These limits only affect a few members who have built up large amounts of pension benefits in the Scheme and elsewhere, but it’s useful to be aware of these limits.

Lifetime Allowance (LTA)

The LTA was the limit on the total value of private pensions someone could build up over a lifetime before a higher tax rate was applied. The LTA for most people was £1,073,100.

The Government abolished the LTA completely from the 2024/2025 tax year. This means benefits in excess of the 25% tax-free allowance, will usually be subject to income tax at marginal rate.

Some benefits such as the Lump Sum Allowance and the Lump Sum and Death Benefit Allowance are still restricted by the LTA limit.

Lump Sum Allowance (LSA) and Lump Sum and Death Benefit Allowance (LSDB)

There are maximum amounts that you or your beneficiaries can receive as tax-free lump sums from your pension. These maximums apply to all your pensions, not just the M&S Scheme.

You can normally choose to exchange up to 25% of your pension for a tax-free cash lump sum. The LSA limits the amount you can exchange in this way to £268,275, which is 25% of the old Lifetime Allowance limit.

In addition, some lump sums paid to you in cases of serious ill health, or to others in the case of your death, can also be tax-free. The LSDB limits the total amount of tax-free lump sums that can be paid out to £1,073,100. Any lump sums you have taken that are included in the LSA, plus any serious ill health or death benefit lump sums, count towards this limit.

Both these limits replace the Lifetime Allowance which was abolished in 2024.

Annual Allowance (AA)

You can receive tax relief on pension savings (excluding the State Pension) that are built up in each tax year up to a limit known as the Annual Allowance. If you contribute more or your pension builds up faster than the AA allows, you’ll have to pay a tax charge.

The AA doesn’t apply to your pension in the M&S Pension Scheme as you can no longer build up extra benefits in the Scheme, but you may want to know more about it when thinking about building up pension savings elsewhere. You can find out more about the Annual Allowance on the MoneyHelper website.

What happens if I exceed any of these allowances?

Most members are unlikely to exceed these allowances. However, if you think you might be affected you should think about:

  • Contacting the Pensions Administration Team
  • Speaking to an Independent Financial Adviser; and/or
  • Visiting the government website for more information on any protection that may be available.
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