Pension tax

Head over to the HMRC website where you’ll be able to find more information on how to do this.

Your pension is taxed during payment just like a regular income using your tax code provided by HMRC.

If you think that you may be affected by the Lifetime Allowance (LTA) or Annual Allowance (AA) whilst you’re paying in to USS, you could choose one of the following options to help you manage your tax charges:

• Choose Enhanced Opt Out (EOO)
• Use a Voluntary Salary Cap (VSC)

In most cases, you won’t need to pay UK income tax if you’re a resident for tax purposes overseas. But you may need to pay income tax on your pension in the country you’ve moved to. If you live in a country with a double taxation agreement (DTA) with the UK, you’ll pay tax in both countries unless you apply for UK tax relief. You can find a full list of all countries with a DTA by searching ‘double taxation agreements’ on gov.uk.

Your tax code will affect how much tax you pay. HMRC will contact us directly if this needs to change.

If you have any questions about your tax code, please contact HMRC directly on 0300 200 3300 (or 0044 135 535 9022 from overseas). You’ll need to quote our tax office reference, which is 428/U168, and you’ll need your National Insurance number handy.

The Annual Allowance (AA) is the maximum amount of pension savings you can build up each year before you may incur a tax charge.

The standard Annual Allowance (AA) is £60,000 per tax year. If you’re a high earner, you’re likely to have a Tapered AA.

Or if you start taking your Investment Builder savings, or any other defined contribution savings, you may be subject to the Money Purchase Annual Allowance (MPAA). This limits how much you can pay into a defined contribution arrangement before you need to pay tax. The limit is £10,000 per year.

You’ll find details of your AA on your Annual Member Statement. If you’ve gone over the standard AA, you’ll also be able to see how much AA you’ve used over the last three years. So you’ll know whether you have any unused AA to carry forward to cover your tax charge.

You can also use our Contributions & Tax Calculator to work out the estimated AA used up by your USS benefits over the 2023/24 tax year.

This is any Annual Allowance (AA) you have left over from the previous three tax years that can be used if you’ve gone over the current year’s AA.

Visit your unused Annual Allowance for more information.

We’re unable to calculate any carry forward for you – you can use your Annual Member Statement to do this.

The benefits you build up in the tax year you left USS will count towards the AA for that year. Any benefits you built up in USS in previous years won’t count.

You’ll need to let HMRC know on your self-assessment tax return. You can find more information about paying your AA tax charge on the HMRC website.

You may be able to use your pension savings to cover the charge with Scheme Pays.

If you have enough unused AA to carry forward from the previous three tax years to cover the charge, you don’t need to complete a self-assessment tax return. Just keep a detailed record in case HMRC ask for more information in the future.

You may also wish to get some tax advice from a tax adviser.

Need some advice or guidance

If you want to seek guidance or take financial advice on the options available to you, visit the guidance and financial advice page. You’ll find a range of resources to support your planning and you can also find information on how to access an independent financial adviser.

You may be able to manage your Annual Allowance tax charge by using the Voluntary Salary Cap (VSC).

You may also be able to use your pension savings to cover the charge with Scheme Pays.

No, you can’t carry forward any unused MPAA from previous years. Find out more about the MPAA.

A Tapered Annual Allowance (AA) is lower than the standard AA and applies to those on a higher income.

Find more on our Tapered Annual Allowance page.

Tapering only applies if you have both a threshold income over £200,000 and an adjusted income over £260,000.

Visit a Tapered Annual Allowance for more information.

This is your taxable income, plus the Annual Allowance amount you have used in the tax year, less your pension contributions. If this is £260,000 or more then you may have a Tapered Annual Allowance.

Head over to the HMRC website where you’ll be able to find more information on how to do this.

This is your taxable income from all sources less your pension contributions. If you've sacrificed any income by taking salary sacrifice on or after 9 July 2015 then add this sacrificed income back on. If you have Threshold Income of £200,000 or more, then you may wish to consider your Adjusted Income, in case you are subject to a Tapered Annual Allowance.

Between 6 April 2020 and 5 April 2023, tapering applied if you had both a threshold income over £200,000 and an adjusted income over £240,000. The tapering worked by reducing your AA by £1 for every £2 of your adjusted income over £240,000 (subject to a minimum AA of £4,000 for adjusted incomes of £312,000 or more).

Prior to 6 April 2020, tapering applied if you had both a threshold income over £110,000 and an adjusted income over £150,000. The tapering worked by reducing your AA by £1 for every £2 of your adjusted income over £150,000 (subject to a minimum AA of £10,000 for adjusted incomes of £210,000 or more).

The LTA is the limit on the amount you can take from your pension savings and benefits where you may pay tax if the total of your pension benefits are worth more than the limit. The government has set the LTA to £1,073,100. From 6 April 2023, there is no longer an LTA tax charge, but you may still need to pay some tax depending on how you take your benefits in excess of the LTA. You can build up a value higher than the LTA, but the excess over the LTA may be taxed depending on how you take it.

With effect from 6 April 2023 there is no LTA tax charge if you exceed the LTA, although any benefits above the LTA may be taxed depending on how you take them. There are a few different things you can do in relation to your benefits to otherwise reduce the amount by which they exceed the LTA:

• Apply to HMRC for certain protections
• Choose Enhanced Opt Out
• Use a Voluntary Salary Cap

We’ll only be able to confirm how much LTA has been used by the benefits you take that were built up with USS – not with any other scheme. You’ll find an estimate of your USS LTA in your Annual Member Statement, and we’ll confirm what LTA you will use when you retire

Or if you’re no longer paying into USS, contact our Pensions Technical Team on 0151 556 0626 and they’ll send you this information.

If you’ve retired, you’ll find your LTA on your retirement statement. We’ll provide details of the LTA to you each year too.

Prior to 6 April 2023 the LTA tax you needed to pay depended on how you took the benefits which were over the LTA limit:

• Excess benefits taken as pension were taxed at 25%
• Excess benefits taken as a lump sum were taxed at 55%

From 6 April 2023 there is no LTA tax charge if you exceed the LTA. However, if you choose to take any benefits that exceed the LTA as an LTA excess lump sum this lump sum will be taxed at your marginal rate of tax. If you don’t take any of your benefits by age 75, they’ll be assessed against the LTA at the time.

See our LTA page for more information.

All pension benefits (except for the State Pension) in your name count towards your LTA.

Yes. But you’ll need to make sure your contributions don’t breach the conditions of any Lifetime Allowance protection you may have in place.

You can only take full retirement if you are retiring from the role in which you get your USS benefits. However, it is possible to consider and apply for flexible retirement.

Yes, you can cancel your EOO election. However, if you cancel within 12 months of making an election this will invalidate your EOO, you will need to be reinstated as a full member (including back payment of your contributions) with effect from the original election date. You may need to consider the tax implications of this decision and may want to take independent financial advice. Once you’ve cancelled EOO after 12 months, we can’t reinstate it under the current rules. Please contact your employer if you wish to revoke your election. You may want to speak to an independent financial adviser before making a decision in relation to your EOO including in relation to any tax implications.

You can keep any late retirement increases that have been applied up to the date your EOO starts. However, from when it starts up to retirement, no further late retirement increases will be added.

For Fixed Protection 2016, you would have to have stopped building your pension by 5 April 2016. So if you didn’t have EOO on 1 April 2016, it’s now too late to apply for Fixed Protection 2016.

If you have Fixed Protection 2016 but you carried on building benefits, it’s your responsibility to inform HMRC that you no longer have the Fixed Protection.

EOO won’t affect your application for Individual protection 2016.

The contribution rate for EOO is 2.5%.

Your benefits will be calculated based on what you’d built up before your EOO started.

In the case of retirement before the Normal Pension Age (NPA), any reductions which apply to your pension will be the same as if you hadn’t used EOO – and you’d carried on building your pension with us.

Yes. We can accept a cancellation of a VSC application before 1 April of the tax year to which it applies. Otherwise, it will remain in force until the end of that tax year. If you want to cancel for subsequent years, you need to tell us by 3 March of that tax year.

It’s a standing agreement that continues each year on a rolling basis. You can cancel it by giving 28 days’ notice – the cancellation will take effect from 31 March. If the salary threshold catches up to your VSC, the salary threshold becomes your new VSC limit.

The lowest you can set the VSC is to the current salary threshold.

You need to decide the overall level of your VSC and tell your employers how you want it applied. For example, if you want to cap your salary at the threshold, and you have two posts at £30,000 per annum, your VSC could apply to one employer (at £10,000) and there’ll be no VSC with your other employer.

You’ll be covered up to the level that you set your VSC at. You can choose to pay 2.5% above the VSC for the full cover of your pensionable earnings.

Visit Enhanced Opt Out for more information.

You may be able to use Scheme Pays to pay your AA tax charge. We’ll take funds from your Investment Builder pot to cover your AA charge. If you haven’t built up enough in your pot, your benefits in the Retirement Income Builder will be reduced to pay the charge. If you don’t want your Retirement Income Builder benefits reduced, you may want to set your VSC higher to ensure you have enough funds in your Investment Builder pot or pay some of the tax charge yourself.

• If you leave a job that had VSC applied to the salary, the VSC would end.
• If you leave a job that didn’t have a VSC applied to the salary, the VSC will still apply until the following 31 March (when your VSC will be cancelled as it’ll be lower than your salary threshold).

You must apply and your employer must submit your completed form before 3 March as your VSC will start from this date.

As a VSC will mean you build up fewer benefits, your adjusted income and the amount of your salary that’s assessed for Annual Allowance purposes will be reduced.

If you want the VSC to continue, you’ll need to let your new employer know, otherwise it’ll stop.

Yes, as long as the charge relates to your USS benefits.

There are two options available if you’d like to manage your tax charges:

• Voluntary Salary Cap
• Enhanced Opt Out

Yes, as long as you let us know before you start taking your pension. This is so we can take off the correct amount before it starts being paid to you.

When you ask for a retirement quote, we’ll let you know what pension savings you've earned in that tax year (and the previous one if you haven’t had that information already). If your Annual Allowance (AA) tax charge is more than £1,000, you can let us know if you want to apply for Scheme Pays – we’ll send the form along with your retirement pack.

Unless you’re retired, you may not know whether you’ll need to pay an AA tax charge until the end of the tax year. You can submit your Scheme Pays notice before you retire based on the information you have at the time.

We’ll pay an estimate tax charge for you. If your charge is over this amount, you’ll need to make up the rest directly with HMRC. And if the charge is lower, you can ask HMRC for a refund.

We can help you with details on your pension with us, but we can’t confirm details about pensions you may have with other schemes or if you have a Tapered Annual Allowance.

To cover the charge, we’ll sell parts of your Investment Builder pot.

As the value of your pot changes every day, we can’t work out exactly how many units we need to sell to cover the charge. So we’ll sell off 10% more than we may need to make sure we have enough if the value of your pot changes. Any amount remaining over the tax charge will be reinvested for you. You’ll be able to see this in My USS.

We’ll only use your Retirement Income Builder benefits to cover the charge if you don’t have enough in your Investment Builder pot. It’ll be taken from your pension and one-off, cash lump sum. If you’re retiring, you can choose either your pension or lump sum to pay it.

We’ll work it out in the same way as if you want to change your pension into extra cash or vice versa. The AA tax charge is then taken from your pension as a regular amount.

You’ll find this information in your Annual Member Statement. If you’ve gone over the standard AA, you’ll also be able to see how much AA you’ve used over the last three years. So you’ll know whether you have any unused AA to carry forward to cover your tax charge.

You can also use our Contributions & Tax Calculator.

Yes, as you’ll already have received tax relief on your contributions. It also reduces the benefits HMRC use to work out your Lifetime Allowance (LTA). And if you’re over the salary threshold, your employer’s contributions to the Investment Builder will also help towards paying your charge.

You can still pay the charge through your own savings. Or if you’re retiring and taking a one-off, tax-free (subject to HMRC limits) cash lump sum, you could put aside some of the lump sum to pay the charge.

You’ll need to let HMRC know on your self-assessment tax return. You can find more information about paying your AA tax charge on the HMRC website.

You may be able to use your pension savings to cover the charge with Scheme Pays.

If you have enough unused AA to carry forward from the previous three tax years to cover the charge, you don’t need to complete a self-assessment tax return. Just keep a detailed record in case HMRC ask for more information in the future.

You may also wish to get some tax advice from a tax adviser.

Need some advice or guidance

If you want to seek guidance or take financial advice on the options available to you, visit the guidance and financial advice page. You’ll find a range of resources to support your planning and you can also find information on how to access an independent financial adviser.

You can estimate your penalty for late self-assessment tax returns and payments at gov.uk.

Yes, because these benefits are based on your full salary – not just limited to your salary threshold.

If you’ve used some of your funds to pay a Scheme Pays charge in the past, we’ll take an amount off your ill health benefits or the benefits we pay out when you die.