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Tax information for higher earners

This page provides important information for high earners. 

What is the lump sum allowance (LSA)?

When you access your pension, you can usually take up to 25% of it as a tax-free lump sum (subject to allowances).

Your lump sum allowance (LSA) is the maximum amount of money you can take as tax-free lump sums from all the pensions you have. While you can still take out more money than this allowance, you will need to pay income tax on it. The LSA is £268,275. It will be higher if you have any protected tax-free lump sums, or a protected lifetime allowance

How much can I pay into my retirement savings account and still receive tax relief?

You can normally pay the equivalent of your annual salary into your retirement savings account each year and still get tax relief. However, there is an annual allowance and if you go above this, you will incur a tax penalty. The annual allowance is currently £60,000.

This allowance applies across all schemes you belong to, and includes all contributions paid by you or anyone else on your behalf, including your employer. 

You’ll have a reduced (tapered) annual allowance if both of the following apply:

  • your ‘threshold income’ is over £200,000 (your income excluding any pension contributions – unless they’re paid as a salary sacrifice by your employer)
  • your ‘adjusted income’ is over £260,000 (your income added to any pension contributions you or your employer make).

If these apply to you, your annual allowance will drop by £1 for every £2 that your adjusted income goes over £260,000. This is limited however: the minimum tapered annual allowance you can have is £10,000. So, if your income is over £360,000, including pension contributions, your annual allowance will be £10,000.

If you have pension benefits in a defined benefit or final salary scheme, they may also count towards your allowance.  You should ask your scheme administrator if you think this might apply to you.

I’ve started to take some of my retirement benefits, can I still pay into a retirement savings account?

If you have started to take your retirement benefits, the amount you can pay into your retirement savings account may be limited to £10,000 a year irrespective of how much you earn. This is called the money purchase annual allowance. You would also lose the right to carry forward any unused allowance.

You can use H M Revenue & Customs (HMRC) annual allowance calculator to check if you have to pay tax on your retirement savings, or if you have any unused annual allowances that you can carry forward. For more information on annual allowances please visit Gov.uk.

How will my savings be taxed at retirement?

You can normally take up to 25% of your funds as tax-free cash (subject to allowances). The rest will be taxed at your marginal rate of income tax.

Please read Tax Year Rates and Allowances 2025/2026 to find out more about allowances which apply to saving for retirement.