The Annual Allowance is the amount by which the value of your pension benefits may increase in any one year without you having to pay a tax charge. From the tax year 2016/17 the Pensions Savings year for all pension schemes runs from 6 April to 5 April; this is called the Pensions Input Period. Prior to the 2015/16 tax year the Pensions Input Period ran from1 April to 31 March.
The Annual Allowance limits from 2011/12 are set out below:
Annual Allowance Limits
|| £80,000 (transitional rules applied)
|| £40,000 *
|| £40,000 *
|| £40,000 *
* From 2016/17 a new tapered Annual Allowance is being introduced for higher earners.
Generally, assessing the increase in your pension benefit for the Annual Allowance covers any pension benefits yo may have in all tax-registered pension arrangements where you have been an active member of the scheme during the Pensions Input Period i.e. you have paid contributions during the relevant Pensions Input Period (or your employer has made contributions on your behalf).
You would only be subject to an Annual Allowance tax charge if the value of your pension savings during a Pensions Input Period increase by more than the Annual Allowance limit for that Pensions Input Period or, if you are subject to the new tapered Annual Allowance, if your pension savings increase by more than the tapered Annual Allowance limit.
However, a 3 year Carry Forward arrangement applies, which allows you to use any amount of unused allowance for any of the previous 3 years to offset any pensions savings over the Annual Allowance limits. This means that even if the pensions savings input is greater than than the Annual Allowance limits, you may not be liable to the tax charges.
For example, if the value of your pension savings in 2014/15 increased by £50,000 (£10,000 more than the Annual Allowance limit) but in the previous three years your pensions savings had increased by £25,000, £28,000 and £30,000, then the amount by which each of those years input fell short of the Annual Allowance limit would more than offset the £10,000 excess pension saving in the current year. There would be no Annual Allowance tax charge to pay in this case.
To carry forward previous years' unused allowance, you must have been an active member of a tax-registered pension scheme in those years.
Most people will not be affected by the Annual Allowance tax charge because the value of their pension savings will not increase in a Pension Input Period by more than the Annual Allowance limit or, if it does, they are likely to have unused allowance from a previous Pensions Input Period that can be carried forward.
If, however, you are affected you will be liable to a tax charge (at your marginal rate) on the amount by which the value of your pension savings for the tax year, less any unused allowance from the previous three years, exceeds the annual allowance.
Staffordshire Pension Fund will inform you if your LGPS pension savings in a pension input period are more than the Annual Allowance limit.
Special rules apply if you have any benefits in a money purchase (defined contribution) pension arrangement which you have flexibly accessed on or after 6 April 2015, or you are a higher earner to whom the 'tapered Annual Allowance' applies.
More details can be found in the brief guide and factsheet below:
Annual Allowance Factsheet (443KB)
LGPS Brief Guide to Annual Allowance (29KB)
The national LGPS website for members has an Annual Allowance calculation tool, please feel free to use it to check the value of your Annual Allowance
Annual allowance quick check tool – as a member you can check the amount of Annual Allowance used from 2016/17 onwards. A decision was taken to keep the AA quick check tool simple so LGA haven’t incorporated the money purchase AA, tapered AA or any years prior to 2016/17 (to avoid the pre and post alignment years). As time goes on LGA will look to introduce carry forward to the check tool.