Tax in retirement
Tax
What tax do my beneficiaries pay on my pension after I die?
If you die before your 75th birthday, any payments from your account to your beneficiaries are normally paid free of income tax. If you die on or after your 75th birthday the recipient(s) of payment from your account will be charged income tax at the rate applicable to their level of earnings. Find out more about tax on pension death benefits.
How do you notify me of tax deducted from my payments?
We will arrange for you to receive a payslip with each payment we make (but not the tax free lump sum). It will show the amount of gross payment taken from your account and the tax deducted.
We will send you a P60 form shortly after the end of the tax year and we will send you a P45 form if you close your account.
What happens if I have paid too much tax?
We may sometimes be required to deduct more tax than due. This could happen when we make the first payment of regular income or if we pay you a taxable lump sum. If you are receiving a regular income you should see the overpayment reversed with your next payment. If this does not happen you can contact HMRC for a refund. Find out more about tax overpayment on your pension.
How is my income tax calculated?
Income tax is calculated through the Pay As You Earn (PAYE) system. HMRC will notify us of your tax code which allows us to work out your personal tax allowance. We apply the tax rate applicable to your income and personal allowance. Find out more about income tax.
Inheritance Tax
Will my account be subject to inheritance tax when I die?
The proceeds of your account will not normally be subject to inheritance tax. This is because Smart Retire is written under a pension trust and the money in your account does not form part of your estate. Find out more about inheritance tax.
Pension Allowance
What is the money purchase annual allowance?
If you start taking flexible benefits from a pension scheme the amount you can continue to contribute to a pension scheme and receive tax relief is reduced to £10,000 a year. This is known as the Money Purchase Annual Allowance (MPAA).
If you exceed this allowance, you will be required to pay a charge to reverse the tax relief you received when paying the contribution. Unused allowance from previous year cannot be used to increase the money purchase annual allowance.
Claiming your benefits through Smart Retire means the money purchase annual allowance applies.
What happens if I exceed the annual allowance?
If your contributions exceed the annual allowance you will be required to pay a charge to reverse the tax relief you received when paying the contribution.
What is the annual allowance?
The annual allowance is a limit on the amount that can be contributed to your pension each year, while still receiving tax relief. It's based on your earnings for the year and is capped at £60,000.
What happens if I have protection from the lifetime allowance?
There are some schemes in place to protect people who exceeded, or were expected to exceed, the lifetime allowance before it was introduced or before it was reduced. You should seek independent financial advice if you think this applies to you. Find out more about the lifetime allowance.
What happens if I exceed the lifetime allowance?
If the total value of your pension pots, including from any defined benefit schemes, exceeds the lifetime allowance, there will be a tax charge on the excess. Any amount over your lifetime allowance will be charged based on your personal circumstances.
How do I know how much lifetime allowance I have used?
The amount of lifetime allowance used by your Smart Retire account will be expressed as a percentage of the standard lifetime allowance. It is shown in your account details.
If you are taking benefits from other pension schemes you might be required to notify the administrator of the total percentages of standard lifetime you have used in this and other pension schemes.
What is the lifetime allowance?
The lifetime allowance is the limit on the amount of your pension savings you can take – whether as lump sums or retirement income – without triggering an extra tax charge.
The standard lifetime allowance for the tax year 2023/2024 is £1,073,100. The government has announced that with effect from the 2024 tax year it intends to abolish the lifetime allowance.
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