The government sets limits around the amount of pension savings you can build up without paying additional tax. These limits are called the Annual Allowance and the Lifetime Allowance. The majority of members will not be affected by these limits. Read the Summary Factsheet for more information.
Annual Allowance (AA)
This is the maximum amount of pension savings that you can receive tax relief on in one year. If the amount that your pension savings builds up exceeds the Annual Allowance (AA), you will have to pay a tax charge.
How much is the AA?
The AA is £40,000 for the majority of individuals in the 2016/17 tax year.
The Annual Allowance will reduce for those ‘earning’ £150,000 or more, down to a minimum of £10,000 for those earning £210,000 or more. Read the Annual Allowance Factsheet for more information.
What counts towards my pension savings?
Your pension savings are calculated differently depending on the type of arrangement you save in:
Benefits from Pace DC:
Your pension savings are the total contributions made to your ‘account’ during the tax year. This is also how the pension savings value is calculated for other DC arrangements such as personal pensions.
Benefits from Pace Complete:
Pace Complete is a defined benefit scheme. Only benefits which have a final salary link will count towards the value of your pension savings. The value of your pension savings is the increase, above inflation, to your final salary linked pension benefit over the tax year multiplied by 16.
Remember, if you are building up pension benefits in schemes other than Pace, these will also count towards your total pension savings for the year.
Lifetime Allowance (LTA)
This is the total value of pension savings you can build up over your entire working life before having to pay a tax charge.
How much is the LTA?
The LTA is £1 million for the 2016/17 tax year. Read the Lifetime Allowance Factsheet for more information.
When are my benefits calculated and compared to the LTA?
Your benefits from all your pension arrangements, including Pace, will be valued at certain times – for Pace members this will usually be:
- when you start to receive your pension; or
- if a lump sum is paid in the event of your death.
How do the changes affect me?
Group Pensions Department have created two worksheets which will help you to understand the impact of the changes in relation to your personal circumstances. To use these worksheets you will need certain information about your expected earnings and pension savings to hand.
These worksheets should not be treated as an authoritative statement of the law on any particular aspect or in any specific case. They should not be taken as financial advice and action should not be taken as a result of this worksheet alone. Individuals are recommended to seek independent financial advice in respect of their own personal circumstances.