The pensions tax regime

The pensions tax regime—overview

Pension savings under registered pension schemes are subject to favourable tax treatment, thus incentivising individuals to save for their retirement and be less reliant on the state pension system. However, the extent to which pension savings attract tax relief is subject to limits imposed by Her Majesty’s Revenue & Customs (HMRC).

Tax considerations are relevant to a UK registered pension scheme when:

  1. funds are paid into the scheme (in the form of member and employer contributions)

  2. funds/assets, including returns made from investing such funds/assets, are held in the scheme, and

  3. monies are paid out of the scheme (in the form of pension benefits)

The current pensions tax relief system can broadly be described as 'Exempt-Exempt-Taxed', whereby the first two above stages are exempt from tax (subject to limits) and the third stage is taxed.

For an introduction to the current pensions tax relief system, see Practice Note: Tax treatment of pensions—an introduction.

The A-day tax regime

The Finance Act 2004 and A-day

The tax regime applicable to pensions changed significantly on 6 April 2006 when the Finance Act 2004

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Latest Pensions News

Minister for Pensions hosts roundtable on ‘Pound for Pound’ initiative in shift from cost to Value for Money

The Minister for Pensions, Torsten Bell MP, has hosted a roundtable with regulators and leading pension providers to support a joined-up approach to Value for Money (VFM) in pensions. The event marked the first public discussion of the ‘Pound for Pound’ (‘£4£’) initiative, aimed at shifting the UK market from cost-based comparisons to broader value-based metrics, shifting market conversations away from cost towards value. This shift is essential for the success of the government’s proposed approach set out in the Pension Schemes Bill 2025. Insights from Australia’s superannuation system were central to the session, highlighting how clear benchmarking, transparency and regulatory oversight have transformed both member outcomes and the understanding of value in Australia. Intended to inform the impending regulatory consultation on VFM metrics, the superannuation system formed a key reference point as the discussion explored how lessons from Australia and insights from providers could shape regulatory thinking and support the development of the Pension Schemes Bill. Roundtable participants including the Department for Work and Pension, the Financial Conduct Authority, Pensions UK and a number of the Mansion House Accord signatories, agreed that now is the time for government, regulators and industry to collaborate in shaping and embedding a robust, fit-for-purpose VFM regime.

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