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Your Local Government Pension Scheme (LGPS) pension is taxable, but your lump sum is paid tax free.

Whether you pay tax when you retire depends on the amount of your pension and your personal circumstances.

When you retire, an emergency tax code will usually be applied for the first month that you receive your pension. Capita (our scheme administrators) will notify HM Revenue & Customs (HMRC) that you’re in receipt of your pension. HMRC will then send Capita the appropriate tax code to be applied against your pension.

If you wish to make an enquiry about your tax code, please contact your local tax office.

For more details about tax, read our 'Tax controls on pension savings' factsheet.

Annual allowance and Lump sum allowance

As you benefit from tax relief on your pension contributions, HM Revenues & Customs (HMRC) applies two tests to your pension benefits called the annual allowance (AA) test and lump sum allowance (LSA) test. Click on the boxes below for more info about these tests.

If you exceed the AA, our 'Pension savings hub' provides all the details and resources you'll need to help you understand your responsibilities.

The annual allowance test

The annual allowance (AA) is the amount by which the value of your pension benefits may increase in any one year without you having to pay an excess tax charge. This amount is set by the Treasury and, with effect from the 2023/24 tax year, is £60,000 per year.

If you exceed this limit in any year, you may be liable to pay a tax charge. If a tax charge is due, you can pay the tax charge yourself, or you can ask the EAPF to pay the tax for you in return for a reduction in your pension benefits. You're responsible for notifying HMRC if you exceed the AA on your Self Assessment tax return.

If the increase in your pension benefits is less than the AA limit in any given year, you can carry forward any unused allowances to the following 3 tax years. This is to prevent a tax charge arising from any sudden increase in value of pension benefits (for example, as a result of a pay increase).

More details on the AA charge can be found on the HMRC website.

You can also read our 'Tax controls and pension savings' factsheet for more details on tax allowances.

The lump sum allowance (LSA) test

The lump sum allowance (LSA) limits the amount of tax free lump sums (also known as a Pension Commencement Lump Sum or PCLS) and the tax free element of Uncrystallised Fund Pension Lump Sums (UFPLSs) that you can take in your lifetime across all registered pension schemes. The limit set by the Treasury is £268,275.

Whether you can actually take a tax free lump sum of £268,275 depends on the value of your pension benefits and whether you’ve already drawn any other pension benefits.

When you become entitled to receive a pension benefit, you'll have to advise your pension provider of the amount of any previous lump sums that you’ve already taken, as this may restrict the maximum tax free lump sum that you can take from the EAPF.

Capita will write to you if you've exceeded the LSA, but it's important to remember that Capita will only have details of your current EAPF pension, so you'll need to let them know of any other pension benefits you've built up elsewhere.

Calculating the AA tax charge

Capita will write to you if your EAPF benefits exceed the AA in a tax year and will let you know if you've any unused allowance from previous years that can be used to offset the tax charge.


A member’s pension benefits for 2023/24 increased by £80,000 and exceeded the standard AA limit of £60,000 for that year by £20,000.

The member can now carry forward tax relief from the previous 3 years starting with the oldest first:

Tax Relief Carry Forward Table (for reference, the AA was £40,000 for the 2020/21, 2021/22 and 2022/23 tax years)

Year Increase in benefit Tax relief Unused relief Carry forward
2022/23              £40,000 £40,000 £0 £0
2021/22              £30,000 £40,000 £10,000 £10,000
2020/21 £35,000 £40,000 £5,000 £5,000

The member can now use the £15,000 unused relief to offset the £20,000, leaving an excess amount of £5,000. 

To calculate the tax charge, the member will need to apply tax at their marginal rate to the excess.

In this example, the member completes a self assessment tax return, and it’s determined that they need to pay a tax charge of  40% on their excess pension savings; this would be calculated as follows: £5,000 x 40% = £2,000 tax due.

Tapered annual allowance

The tapered annual allowance was introduced from 6 April 2016 and, since 6 April 2023, it affects those individuals with an adjusted income over £260,000 and a threshold income that’s over £200,000.

For every £2 of adjusted income over £260,000, an individual’s annual allowance will be reduced by £1, down to a minimum of £10,000.

As at present, any unused annual allowance from the 3 previous tax years will be available to be carried forward and added to an individual’s annual allowance.

  • Adjusted income is broadly your total income from all sources plus your pension input amount
  • Threshold income is broadly equal to your total income from all sources, after the deduction of tax and pension contributions

For more details about Tapered annual allowance, download our ‘Tax controls and pension savings’ factsheet from our Publications page.

Pension Input Periods (PIPs)

The Local Government Pension Scheme (LGPS) pension input period currently runs from 6 April to 5 April each year.

Annual allowance and Scheme pays

If you exceed the annual allowance (AA), you can ask the EAPF to pay some or all of your AA tax charge.

In some cases, the EAPF is obliged to pay the charge on your behalf (mandatory scheme pays) and, in other cases, it’s entirely at their discretion (voluntary scheme pays). In return for the EAPF paying your AA tax charge, there'll be an appropriate reduction to your pension benefits within the Scheme.

We'll send you confirmation that your election has been received and recorded. Where the EAPF is not obliged to pay the charge on your behalf, but has the discretion to so, they’ll consider your application and get back to you a short time later to let you know if they’ve approved your application or not.

If you’re interested in the Scheme Pays option, download our ‘Scheme Pays flowchart’ which tells you exactly what to do.

If your AA charge changes after you send us the Election form, you can't revoke that election, but in some circumstances, you can amend it by sending in a further form to Capita.

Please note that timescales for ‘mandatory’ and ‘voluntary’ scheme pays are different and, in some circumstances, you may have a tax charge that falls into both categories. Failure to comply with the timescales could result in:

  • HMRC fines; and
  • A ‘mandatory’ scheme pays election turning into a ‘voluntary’ one, so the EAPF wouldn’t be obliged to pay the charge on your behalf

For more details on scheme pays (including the qualifying criteria for a ‘mandatory’ scheme pays and the relevant timescales that apply) you can read our helpful factsheet called 'Scheme Pays Questions and Answers'. Download our Scheme Pays Q&A factsheet.

What should I do next about lump sum allowance?

You'll find more information on how the lump sum allowance (LSA) works, and a range of protections provided by visiting the HM Revenue and Customs (HMRC) website. Visit the HMRC website.

You can also read our 'Tax controls' factsheet for more details on LSA.

Capita can provide further factual information about your pension benefits within the Scheme, but this is an extremely complex area and they won't be able to give you advice about whether or not protection is right for you.

Your decision will be dependent on your personal circumstances, and we recommend that you speak to an independent financial adviser (IFA).

MoneyHelper is a free, independent service set up by government. They give clear, unbiased money advice to help you make informed choices. MoneyHelper can help you understand the different types of professional advice available and can help you find an IFA in your area. Visit the MoneyHelper website at

Pension savings hub

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All the details and resources you'll need to help you understand what to do if your pension savings exceed the annual allowance.
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