How is the Growth Calculated?

The BIGGEST misconception for the Annual Allowance is that contributions by the member and the employer as used to calculate this – This Is Wrong.

The Annual Allowance is based on the growth in the pension from the start of the tested period to the end.

The tested period is the Tax Year; the 6th April to the 5th April in the following year.

A calculation is made using the amount of pension you have at the start of the period, the resulting figure is called the Opening Balance.  This number is deemed to be ‘unfair’ and too low, so can be increased by inflation (based upon CPI from the previous September).

You then do the same calculation at the end of the period, this is the Closing Balance.

You then take the Opening Balance from the Closing Balance and the resulting amount is your ‘deemed’ Annual Allowance

If you have growth in more than one part of the pension (1995, 2008 and/or 2015), this calculation is completed for each part and the totals are then added together.

Have you received an Annual Allowance letter from NHSBSA (Pensions)? 

Did you check if this ‘Breach’ letter then created a Tax Charge?

Did you pay this charge through Direct Payment to HMRC or Scheme Pays Election?

Did you just ignore it and do nothing?!

See the next sections for the answers to these questions