Tax and your pension

This is the amount by which the value of your pension benefits may increase in any one year without you having to pay a tax charge. From the tax year 2016/2017 the pension savings year for all pension schemes runs from 6 April to 5 April; this is called the pension input period. Prior to the tax year 2016/2017 the pension savings year in the LGPS ran from 1 April to 31 March.

The annual allowance limit since 2011/12 is set out below:

*From 2016/2017 a new tapered allowance was introduced for higher earners.

Generally, assessing your pension growth for the annual allowance covers any pension benefits you may have in all tax-registered pension arrangements where you have been an active member of the scheme during the tax year i.e. you have paid contributions during the tax year (or your employer has paid contributions on your behalf).

You would only be subject to an annual allowance tax charge if the value of your pension savings for a tax year, increase by more than the annual allowance for that tax year, or if you are subject to the tapered annual allowance, if your savings increase by more than your tapered annual allowance.

However, a three year carry forward rule allows you to carry forward unused annual allowance from the previous three tax years. This means that even if the value of your pension savings increase by more than the annual allowance in a year you may not be liable to the annual allowance tax charge.

For example, if the value of your pension savings in 2015/16 increased by £50,000 (i.e. by £10,000 more than the annual allowance) but in the three previous years had increased by £25,000, £28,000 and £30,000, then the amount by which each of these previous years fell short of the annual allowance for those three years would more than offset the £10,000 excess pension saving in the current year. There would be no annual allowance tax charge to pay in this case. To carry forward unused annual allowance from an earlier year you must have been a member of a tax registered pension scheme in that year.

Most people will not be affected by the annual allowance tax charge because the value of their pension saving will not increase in a tax year by more than the annual allowance limit or, if it does, they are likely to have unused allowance from previous tax years that can be carried forward.

If, however, you are affected you will be liable to a tax charge (at your marginal rate) on the amount by which the value of your pension savings for the tax year, less any unused allowance from the previous three years, exceeds the annual allowance.

The Fund will inform you if your LGPS pension savings in a pension input period are more than the annual allowance limit no later than 6 October following the end of the relevant tax year.

If you do exceed the Annual Allowance and have a tax charge to pay, you can ask the Fund to make the payment on your behalf. In return for the Fund making payment of the tax charge, there would be a reduction to your annual pension. If you would like the Fund to make payment of your annual allowance tax charge, please complete the Scheme Pays Election Form (PDF, 153 KB). You must submit your form before 31 July, in the year following the end of the year to which the Annual Allowance charge relates.

Special rules apply if you have any benefits in a money purchase (defined contribution) pension arrangement which you have flexibly accessed on or after 6 April 2015, or you are a higher earner to whom the 'tapered annual allowance' applies.

Use the Annual Allowance Quick Check tool to check your amount of Annual Allowance used from 2016/17 onwards.

For more information on annual allowances, see the annual allowance factsheet.