What is the Annual Allowance?
The Annual Allowance (AA) is the total amount of pension savings you can make each year before incurring a tax charge. The current standard limit is £40,000. The annual allowance applies across all of the pension schemes you belong to, it’s not a ‘per scheme’ limit and includes all of the pension contributions that you or your employer pay or anyone else who pays on your behalf.
If you exceed the annual allowance in a year, you won't receive tax relief on any contributions you paid that exceed the limit and you may need to pay an annual allowance charge. You may bring forward any unused annual allowances from the previous three tax years, to either reduce your annual allowance charge to a lower amount or reduce the annual allowance charge completely.
Where to find help regarding your Annual Allowance?
You may have recently received a letter from Local Pensions Partnership Administration (LPPA) regarding your Annual Allowance and Pension Savings Statement - this can be a lot of information to take in. To help you, we have provided information and some useful links below.
Video Guide - many people find the video from the Local Government Pension Scheme helps them to understand the Annual Allowance and what to do.
(Captions Available: CC)
For more videos, click here
HM Revenue & Customs website - you can find more information about the Annual Allowance and whether there’s an Annual Allowance charge for you to pay by visiting the HM Revenue & Customs (HMRC) website: www.gov.uk/tax-on-your-private-pension/annual-allowance.
Tapered Annual Allowance - If your income exceeds £110,000 you may be subject to the Tapered Annual Allowance. Click on the following HMRC weblink to work out if this applies to you: www.gov.uk/guidance/pension-schemes-work-out-your-tapered-annual-allowance.
The Pensions Advisory Service (TPAS) – comes under the Department for Work & Pensions and its aim is to make pensions accessible and understandable for everyone. They provide independent and impartial information and guidance about pensions, free of charge, to members of the public. To find out more, go to www.pensionsadvisoryservice.org.uk
Need Independent Advice - it is recommended that you speak to an independent financial or tax advisor. If you don’t have an advisor, you could try www.unbiased.co.uk - please note that LPPA has no connection with Unbiased.co.uk.
As your Pension Administrator LPPA Cannot Give You Advice
Unfortunately, LPPA cannot offer any form of financial or tax advice to you and we cannot answer questions which relate to any pension scheme you may have with other pension providers.
We can only help you regarding your Annual Allowance if:
The contributions you make to the Local Government Pension Scheme (LGPS) are tax free up to certain limits.
Her Majesty’s Revenue and Customs (HMRC) impose controls on the amount of pension savings you can make without having to pay additional tax, this is known as the Annual Allowance (or AA for short) limit.
This is in addition to any income tax you pay on your pension once you are receiving it.
Each year if you have, or are close to exceeding the set limit, you will receive an Annual Allowance letter and your Pension Savings Statement by the 6th October.
The Annual Allowance impacts all pensions you have or are paying into. The rules surrounding tax and your pensions are complex. You may want to consider financial advice to help look at your individual tax position.
Local Pensions Partnership Administration (LPPA) deal with the administration of your pension but are unable to offer tax advice as we are not regulated to do so.
There are free resources to help and these are detailed in the help section below.
We would ask that you only contact LPPA via telephone or email if you:
Our Helpdesk colleagues will be unable to assist with any additional queries relating to your annual statement or tax position.
For more information about the Annual Allowance see the Common Questions below.
Before you start
You can use this check tool to check if your LGPS pension saving in a tax year (from 2016/17 forward) is likely to exceed the annual allowance.
You will need to input the value of your LGPS pension benefits (including AVCs) at the start of pension input period and at the end. The pension input period runs from 6 April to 5 April. If you wish to use the pension figures provided on your annual benefit statements please note that the results will not be completely accurate. The reason for this is that the pension input period runs from 6 April to 5 April whilst the scheme year in the LGPS runs from 1 April to 31 March. Whilst using the figures on your annual benefit statement can provide a good estimate of your pension growth if you think you are near to, or likely to exceed the annual allowance in any tax year, you should contact your pension fund administrator for more accurate information.
You cannot use this check tool: