What happens if you exceed the Annual Allowance?

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. 

SPPA will inform you by 6 October each year if you've exceeded the Annual Allowance, but only if you exceed £40,000 in a single scheme. You'll receive a pension savings statement detailing the pension input amounts (this is the amount of growth in your pension values for the relevant tax year). We'll also provide the pension input amounts for the previous 3 years as you can offset an Annual Allowance breach in any one year against any unused allowance in the previous 3 years.

How to identify if you've incurred a tax charge

You can use HMRC's calculator 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 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, but SPPA will only accept a Scheme Pays election for your SPPA pension scheme liabilities. To qualify for Scheme Pays you must meet the HMRC mandatory requirements.

The table below shows the Annual Allowance limits from 6 April 2011:

 

Tax Period

Annual Allowance

Money Purchase Annual Allowance

Alternative Annual Allowance

01-Apr-11 - 31-Mar-12 £50,000    
01-Apr-12 - 31-Mar-13 £50,000    
01-Apr-13 - 31-3-14 £50,000    
01-Apr-14 - 31-Mar-15 £40,000    
01-Apr-15 - 08-Jul-15 £80,000 £20,000 £80,000
09-Jul-15 - 05-Apr-16 up to £40,000* up to £10,000 up to £30,000
06-Apr-16 - 05-Apr-17 £40,000 £10,000 £30,000
06-Apr-17 - 05-Apr-18 £40,000 £4,000 £36,000
06-Apr-18 - 05-Apr-19 £40,000 £4,000 £36,000
If you've received an Annual Allowance pension savings statement and have an enquiry about the earnings quoted, please contact your employer in the first instance. All other enquiries relating to Annual Allowance should be emailed to sppatax@gov.scot.

Exceeding the Annual Allowance

As long as we have the relevant information from your employer we'll automatically provide your pension input amount for the relevant tax year if you've breached the Annual Allowance. We'll also provide the pension input amount for the three previous tax years if available.

It's your responsibility to establish if you're subject to tapering or the Alternative Annual Allowance and to calculate any Annual Allowance charge. You can use HMRC's calculator along with the information they provide on tapering and the Alternative Annual Allowance.

If you exceed the Annual Allowance there may be an annual charge to pay. This is not at a fixed rate but depends on how much taxable income you have and the amount of pension saving in excess of the Annual Allowance. 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.

Any unused Annual Allowance from the previous three tax years can also be used to offset against an Annual Allowance charge in the relevant tax year. If you are able to ‘carry forward’ the unused allowance and add it to your Annual Allowance limit in the current tax year, it may prevent an Annual Allowance Charge being payable.

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 2016/17

Tax-year 2017/18

Tax-year 2018/19

Notification of information from the Employing Authority

06-Jul-17 06-Jul-18 06-Jul-19

Pension Saving Statement produced

06-Oct-17 06-Oct-18 06-Oct-19

Member Self-assessment submitted to HMRC

31 October 2017 (paper) 31 October 2018 (paper) 31 October 2019 (paper)
31 January 2018 (electronic) 31 January 2019 (electronic) 31 January 2020 (electronic)

Notice of Scheme Pays received by Scheme Administrator

31-Jul-18 31-Jul-19 31-Jul-20

Closing date for Annual Allowance payment

14-Feb-19 14-Feb-20 14-Feb-21

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.

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

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