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.
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:
Lifetime allowance limits
|Date Applicable From||Lifetime Allowance figure|
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.
Lifetime Allowance Factsheet (469KB)
The national LGPS website for members has an Lifetime Allowance calculation tool, please feel free to use it to check the current value of your Lifetime Allowance
Lifetime allowance quick check tool – the tool will allow you member to work out if you are likely to exceed the Lifetime Allowance.