The Annual Allowance (AA) is a limit which restricts the amount of pension growth you are allowed each year before tax charges apply. Where your pension growth exceeds this limit, any charge is intended to recover tax relief received on the contributions you have paid.
The key word here is growth as it is NOT based upon your actual contribution to the scheme
We are only talking about the Standard AA. Are you affected by the Tapered AA?
The Annual Allowance in the 2013/14 tax year was £50,000.
However, from 6th April 2014 this was reduced to £40,000.
Starting in October 2013 the NHS Pension Agency has been sending out AA statements and will continue to do so going forward. It is important to note that these have been targeted only for those in excess of the allowance.
If you have received one please contact us to initially confirm the figures and then what your options are.
Why has it been introduced?
This legislation is not unique to the NHS as the principles apply to all pension savers however, the impact on members of the NHS can be more significant as is a defined benefit scheme, as well as pay scales that employees progress through during their career. It is important to ascertain what your growth is and if and how the AA will affect you.
The concept of the AA was first introduced in April 2006 through the Finance Act. This date is often referred to as ‘A-Day’ or ‘pension simplification’ but invariably ‘simple’ can be the furthest thing from the truth. From 2006 the limit was set at £215,000 and grew steadily until 2011 after which the government severely reduced the Standard Annual Allowance to £50,000 and more recently did so again, as shown in the table below:
|Tax Year||Lifetime Allowance|
|2014/15 – To Present||£40,000|