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Tax considerations 

Members of pension schemes in the UK enjoy tax relief on contributions paid in and are also able to draw part of their retirement benefits as a tax-free lump sum on retirement. Pension incomes are however taxed as earned income under the PAYE system.

Use the ‘Cost of contributions’ calculator to see just how much tax relief you receive.

There are however limits to the maximum benefit you can build up in any one year and the maximum benefits you can draw at retirement and still enjoy beneficial tax treatment.

Maximum benefits

USS provides very valuable benefits and is designed to allow you to build up a pension of 1/80th of your pensionable salary for each year of pensionable service plus three times this pension as a tax-free lump sum, as standard.

Many members may not build up enough pension through normal contributions for a variety of reasons; they may have joined the scheme later in their career, had a career break or plan an early retirement.

There are therefore two Additional Voluntary Contribution (AVC) facilities members can use to increase the value of their retirement benefits whilst still receiving tax relief on contributions.

The big attraction of any AVC is that you receive tax relief on your contributions at the highest rate for which you are liable, so it’s a very attractive way to and build up greater retirement benefits, including a tax-free lump sum on retirement.

There are limits though, on how much retirement benefits you can build up each year, called the Annual Allowance and on the final value of your retirement benefits, called the Lifetime Allowance. There’s also a limit to the maximum amount of tax-free cash you can take at retirement.


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