Due to recent changes to pensions tax announced in the UK Government's Spring Budget on 15th March 2023, this page is currently under review. We are currently working on updating this content. Read more about these changes Spring Budget 2023 - GOV.UK (www.gov.uk)
Your Pensions Annual Allowance
Since 2006, the government has limited the amount of tax relief that you can receive on pension savings. The current Annual Allowance is £40,000.
If you exceed the Annual Allowance for the amount that you can build up in your pension schemes in any given year and benefit from tax relief, you may incur a tax charge.
The Annual Allowance limit includes all superannuation and private pensions but does not include the Government State Pension and it's currently set at £40,000.
The allowance is measured against the annual growth in your pension during what’s called the ‘pension input period’ (which is now the tax year from 6 April to 5 April each year).
It’s calculated as the increase in the value of your pension benefits (annual pension and any lump sum) after allowing for inflation (which is pegged to the Consumer Price Index).
For defined benefit schemes like those administered by SPPA, pension savings are calculated based on the growth in the value of your benefits, not the contributions paid by members and employers. The increase in annual pension value is multiplied by a factor of 16, then added to any increase in lump sum. This provides you with the growth to be assessed against the Annual Allowance limit for the tax year.
If you exceed the Annual Allowance, you could be subject to a tax charge.
What happens if you exceed the Annual Allowance?
If you exceed the £40,000 Annual Allowance limit in one of our schemes, we will issue you with a Pension Savings Statement by 6 October following the end of the tax year as long as we have the relevant information from your employer (or the year after if you hold practitioner benefits). It will show your 'pension input amounts' (PIA) for the current year and three previous years if available. You can also request Pension Savings Statement at any time. You should request a statement if you think your pension input amount across any final salary pension as well as career average CARE pension combined might exceed your annual allowance
You can work out your Annual Allowance tax position using the HMRC calculator (opens in a new tab). We have prepared some guidance you may wish to refer to whilst using the calculator (opens in a new tab).
If you have to pay an Annual Allowance tax charge, you can settle this directly with HMRC or elect to use Scheme Pays. A Scheme Pays election would mean that SPPA pay the tax charge on your behalf in exchange for a permanent deduction to your pension benefits. An HMRC tax return would need to be completed in either case.
Carrying forward unused allowance
If you have unused Annual Allowance from the previous three years, you can carry this forward to offset any charge.
Tapered Annual Allowance
If you earn more than the Threshold income from all your sources of income, you’ll be affected by what’s known as ‘Tapered Annual Allowance’.
Effectively, this mechanism reduces your Annual Allowance on a phased basis from £40,000 down to a minimum of £4000 depending on the tax year and how much you earn.
If you’re earning more than the threshold incomes shown below , you may need to seek professional advice to ensure you manage your Annual Allowance effectively.
|Tax Year||Threshold Income Limit|
|2021 to 2022||£200,000|
|2020 to 2021||£200,000|
|2019 to 2020||£110,000|
|2018 to 2019||£110,000|
|2017 to 2018||£110,000|
|2016 to 2017||£110,000|
How to identify if you've incurred a tax charge
If you exceed the Annual Allowance there may be an Annual Allowance charge to pay.
You can use HMRC's calculator (opens in a new tab) and enter the pension input amounts from your pension savings statements. This will show whether you have a tax charge or unused allowance from the previous 3 years. If you have benefits in more than one scheme, such as an SPPA final salary scheme and career average CARE scheme, or other private pension, then the sum of all of your pension input amounts should be considered and tested against the annual allowance.
It's your responsibility to establish if you are subject to a Tapered Annual Allowance using the information HMRC provide.
The output from the calculator is the ‘amount on which tax is due’, and the actual charge payable is dependent on your marginal tax rate. To calculate this you need to work out the rate of tax that would be charged if your excess pension savings were added to your taxable income and taxed based on your marginal income tax rate. If you're unsure, guidance and examples of the marginal tax rate can be found on the HMRC website (opens in a new tab).
If a tax charge is applicable, it must be paid to HMRC by the following 31 January.
You may be able to ask SPPA to arrange payment of some, or all of your Annual Allowance tax liability to HMRC. This is known as Scheme Pays. SPPA will only accept a Scheme Pays election for your SPPA pension scheme liabilities in excess of your Annual Allowance. To qualify for Scheme Pays you must meet the HMRC requirements.
Annual Allowance Legislative Time Scales
|The following assumes that the member has not crystallised benefits, transferred out or attained the age of 75 without taking their benefits||Tax Year 2018/19||Tax Year 2019/20||Tax Year 2020/21||Tax Year 2021/22|
|Notification of information from the Employing Authority||06 July 2019||06 July 2020||06 July 2021||06 July 2022|
|Pension Saving Statement produced||06 October 2019||06 October 2020||06 October 2021||06 October 2022|
Member Self-assessment submitted to HMRC
31 October 2019 (paper)
31 January 2020 (electronic)
31 October 2020 (paper)
31 January 2021 (electronic)
31 October 2021 (paper)
31 January 2022 (electronic)
31 October 2022 (paper)
31 January 2023 (electronic)
|Notice of Scheme Pays received by Scheme Administrator||31 July 2020||31 July 2021||31 July 2022||31 July 2023|
|Closing date for Annual Allowance Scheme Pays payment||14 February 2021||14 February 2022||14 February 2023||14 February 2024|
Annual Allowance and Club Transfers
If you complete a transfer of pension rights using the Public Sector Transfer Club, any growth in pension benefits arising from a pensionable pay increase when you move between Club schemes must be taken into account when calculating the pension input amount for Annual Allowance purposes.
In final salary schemes this means that if there is a significant difference in the pensionable pay your deferred benefits in the previous scheme are linked to, and the current pensionable pay that they will be valued with after the transfer, then there could be significant pension input to be assessed against the Annual Allowance.
This brings transferring members in line with members who receive an increase in pensionable pay without changing schemes.
Career average pension schemes also need to ensure that any enhanced revaluation applied to cover a break in employment is included in the calculation of the pension input amount.
Any adjustment to pension benefits to reflect differences in Club schemes is excluded.