Tax and your pension
In this section
There are a number of different types of taxes that might apply to your pension.
Tax overview
Types of tax
There are a number of different types of taxes that might apply to your pension. It’s important that you understand these, but generally your fire and rescue authority or the administrator they appoint to administer the scheme will make you aware if you are likely to incur a tax charge.
Annual allowance
Savings each year
This is the amount of pension you can build up each year, across all your pension arrangements, without receiving a tax charge.
For the 2025/26 tax year the annual allowance is £60,000.
Your pension administrator will let you know if your pension from the firefighters’ pension scheme exceeds the annual allowance.
You can find out more about the annual allowance on the government website.
Remedy and the annual allowance
In some cases, changing your pension choice for the remedy period may change the amount of pension you built up each year. You may have already paid a tax charge during the remedy period, or you may owe tax for the first time as a result of your remedy choices.
If your choices impact your annual allowance, you will be told alongside your annual benefit statement or remediable service statement, this may be in the form of a document called an pension saving statement (PSS).
What happens if I go over the annual allowance?
If you go over the annual allowance you should report it to HMRC on a self-assessment tax return, even if you don’t normally complete one.
If the tax charge is over £2,000, you might be able to ask the firefighters’ pension scheme to pay the charge. You would then repay it from your pension benefits when they start to be paid (this is known as scheme pays).
You should speak to your fire and rescue authority for more information as some individual circumstances and specific timescales may apply.
For members affected by age discrimination remedy, some extended deadlines have been agreed for scheme pays deadlines, these are:
- For active and deferred members – deadline extended from 31 July 2024 to 6 July 2025
- For pensioner members – deadline extended to 6 July 2027.
For members not affected by remedy, the normal tax deadlines apply.
Lump sum allowance
Taking a lump sum
When you retire, you can usually take up to 25% of the value of your benefits as tax free lump sum (also known as a pension commencement lump sum). The lump sum allowance is the most you can take before receiving a tax charge.
The lump sum allowance is £268,275 for most people.
To calculate the value of your benefits, the following formula is used:
(20 x annual pension) + lump sum
Any lump sum over the lump sum allowance is deemed as unauthorised and a tax charge of 40% would be payable on the value above the authorised amount.
Lump sum limits and firefighters’ pension scheme 1992 members
Since 6 April 2010, the normal minimum pension age has been age 55.
Members of the firefighters’ pension scheme 1992 have the option to retire from age 50 with at least 25 years service. They were entitled to keep their earlier normal minimum pension age providing that they were a member of the scheme on 5 April 2006. This is known as a protected pension age.
There are some instances where members may lose their protected pension age and tax charges would apply to on all pension payments up to the normal minimum pension age at age of 55 – including any lump sum.
The charge is made up from three areas:
| Charge | % | Payable by |
| Unauthorised payment charge | 40% | Member |
| Scheme sanction charge | 15% | Fire and rescue authority |
| Unauthorised payment surcharge | 15% | Member |
Read more about the protected pension age in the firefighter’s pension scheme 1992 and instances where this could be lost in the 1992 protected pension age section.
Lump sum death benefit allowance
When you die
This limit applies to any lump sums paid out on death (before age 75) or certain lump sums paid due to serious ill-health.
If the value of these payments exceeds £1,073,100, there may be a tax charge.
Tax on your pension
Your income
When you retire, your pension counts as income so you will get taxed on it in the same way as your earnings.
Pension schemes act like an employer. They use the PAYE system (Pay As You Earn) to deduct tax before paying you.
You do not pay national insurance contributions on your pension income.