HM Revenue and Customs impose two controls on the amount of pension savings you can make without having to pay extra tax. These controls are known as the Annual Allowance and Lifetime Allowance. This is in addition to any income tax you pay on your pension once it is in payment.
What is Annual Allowance?
The Annual Allowance (AA) 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. This is in addition to any income tax you pay on your pension once it is in payment.
All your pension savings in the Fund, as well as any AVCs or contributions to personal pensions or stakeholder arrangements you are making, should be added together each year to determine your Pension Input Amount (PIA). This is tested against the Annual Allowance for each tax year.
If the value of your pension savings in any one year (including pension savings outside of the LGPS) are in excess of the annual allowance, the excess will be taxed as income.
The Annual Allowance for 2022/2023 remains at £40,000.00. A factsheet has been produced containing further information on Annual Allowance.
Annual Allowance video
A short video has been produced by the LGPS to further explain Annual Allowance.
Annual Allowance Quick Check Calculator
In addition an Annual Allowance quick check tool is available through the National LGPS member website.
The rules governing AA can be complex and are subject to change; if you are unsure how to proceed you are advised to obtain independent financial advice. For help in choosing an independent financial advisor please visit the MoneyHelper website