The Pearson Pension Plan

Tax and Allowances

• Adjusted income

  The total taxable income you have received from any source in the current tax year (including any benefits in kind) plus the value you have added to your pension savings in the current tax year.

• Annual Allowance charge

  The amount of tax you will need to pay to HMRC if you exceed your Annual Allowance. The charge is calculated as a percentage of the excess amount over £60,000.

• Annual Allowance

  This is the maximum amount of tax-free pension savings that you can build up over a year. The standard Annual Allowance for the tax year 2024/25 is £60,000 and the minimum Tapered Annual Allowance is £10,000.

  For additional information on Annual Allowance, we recommend looking at Money Helper’s annual allowance for pension savings page - This link opens in a new browser window

• Carry Forward

  The process of using any unused Annual Allowance in one or more of the previous three tax years to offset your Annual Allowance charge in the current tax year.

• Lifetime Allowance (LTA)

  The LTA is the maximum amount your pension pot can be without incurring an additional tax charge. The current amount is £1,073,100 for the 2023/2024 tax year.

  For more information on the LTA, we recommend Money Helper’s LTA guide - This link opens in a new browser window.

• Lump Sum and Death Benefits Allowance (LSDBA)

  The Lump Sum and Death Benefit Allowance (LSDBA) limits the total amount of tax-free lump sums paid to or in respect of an individual across all pension arrangements. The standard LSDBA has been set at £1,073,100 (although a higher LSDBA amount may apply where members have a relevant tax protection) and the following lump sums payable form the Plan are tested against the LSDBA:

  • Pension commencement lump sums (tax-free lump sum)
  • Uncrystallised funds lump sum death benefits.
  • Serious ill-health lump sums
  • Defined benefit lump sum death benefits

  The following lump sums payable from the Plan are not tested against the LSDBA:

  • A small lump sum
  • A trivial commutation lump sum
  • A trivial commutation lump sum death benefit.

• Money Purchase Annual Allowance

  The MPAA applies if you have previously flexibly accessed pension benefits in a defined contribution arrangement. It is the maximum amount of tax-free savings that you can build up over the tax year.

  The MPAA for the tax year 2024/25 is £10,000. If you pay contributions over this amount, you will need to pay the Annual Allowance tax charge and you will not be able to use any carry forward from previous years.

  If you are affected by the MPAA, please tell the pensions team so we will send you a pension savings statement each year.

• Overseas transfer allowance (OTA)

  From 6 April 2024, amounts transferred to a Qualifying Recognised Overseas Pension Scheme (QROPS) are tested against the overseas transfer allowance (OTA). The OTA is set at the same level as the individual’s LSDBA.

  Where individuals have crystallised pension benefits prior to 6 April 2024 (including as a result of a transfer to a QROPS), their available OTA is reduced by an amount equal to 100% of the value of their LTA used as at 6 April 2024.

• Pension Input Amount

  Either the increase in the value of your defined benefit pension savings or the total contributions paid by you, or on your behalf, into a defined contribution arrangement. You can find this for the Plan on your pension savings statement.

• Pension Input Period

  The tax year the growth in your Plan pension is measured.

• Pension savings statement

  A statement issued by 6 October each year to members who may have an Annual Allowance tax charge. If you do not receive a statement, you can request one from the team.

• Scheme Pays

  A facility where your Annual Allowance charge is paid by the Trustee and in exchange you give up some of the benefits you have built up within the Plan.

• Tax relief

  Your pension contributions are taken out of your salary before tax, which means you pay no tax on them. Your tax relief is worked out automatically by payroll, so you don’t need to do anything.

• Threshold income

  The total amount you have received from any source in the current tax year which is liable to income tax (including any benefits in kind).