If the total amount of benefits due to a person from all registered pension schemes exceeds a lifetime allowance set by HM Revenue and Customs (HMRC), tax charges may apply.
Because of this, before Staffordshire County Council can assess your entitlement to benefits under the Local Government Pension Scheme (LGPS), they need you to declare your entitlement to any other pension benefits.
What is a lifetime allowance?
HMRC make tax rules with which registered pension schemes must comply. The LGPS is a registered pension scheme. This gives scheme members certain tax concessions.
For example, the contributions you pay to the scheme normally attract tax relief. Also, apart from any 'pay as you earn' (PAYE) income tax that you may be required to pay on instalments of pension, the benefits paid out by the scheme are not normally taxed provided that the total capital value of all the benefits to which you are entitled from registered pension schemes does not exceed a lifetime allowance set by HMRC. If the total capital value of benefits does exceed the lifetime allowance, the excess will be subject to tax charges.
This principle of testing the value of benefits against a lifetime allowance was introduced on 6 April 2006. If you have pension rights in the LGPS and no other pension entitlement, then it is probable that the value of your benefits would exceed the lifetime allowance only if you have 40 or more years' membership in the scheme and your pensionable pay is in excess of £100,000 a year.
Lifetime allowance limits
The value of the lifetime allowance has changed since it was introduced on 6 April 2006. The table below sets out the lifetime allowance limits that have applied since 2006:
|Date applicable from||Lifetime allowance|
|6 April 2006
|6 April 2007
|6 April 2008
|6 April 2009
|6 April 2010
|6 April 2012
|6 April 2014
|6 April 2016
|6 April 2017
|6 April 2018
|6 April 2019
|6 April 2020
It was confirmed in March 2021 that the lifetime allowance will remain at its current level until further notice.
If the total capital value of your pension benefits from all of your pension pots does exceed the Lifetime Allowance, the excess will be subject to tax charges. The tax charge would be 55% of your lump sum and 25% of your pension.
A factsheet containing more information about the Lifetime Allowance has been produced by the Local Government Association.
Quick check tool
The national LGPS website for members has an lifetime allowance quick check tool, please feel free to use it to check the current value of your lifetime allowance.