This page provides pension and tax information for all staff. Whilst it will be of particular interest to higher earners the tax changes to the Annual Allowance may, in certain circumstances, also affect members with more modest salaries.
2014/2015 Pension tax changes – overview
The tax relief applicable to pensions has changed a number of times since 2010/11.
For further information about these changes, see the links below;
HM Revenue & Customs provide guidance for individuals on their website: www.hmrc.gov.uk/pensionschemes
MyCSP has launched a new service for employers to help you and your senior staff understand the impact of changes to pensions taxation. Details of this service can be found at this link..
You should consider matters carefully before making any decisions and may wish to consult an independent financial adviser for advice.
Nothing in this communication should be interpreted as constituting financial advice. You should obtain independent advice on any specific issues concerning you.
Annual Allowance – £40,000 from tax year 2014/15
The Annual Allowance sets the maximum amount of pension saving that you can build up in any one year before incurring a tax charge. This includes actual employer and employee contributions to defined contribution schemes (such as an AVC scheme or Partnership), as well as benefits built up in defined benefit schemes such as classic, classic plus, premium and nuvos.
Annual allowance is worked out as 16 times the increase in the value of your pension during the year, plus the increase in value of any automatic lump sum (classic/classic plus only). A measure for inflation is included in the calculation.
Please be aware that this doesn’t just affect high earners. Any of the following actions or processes could also have an impact on the amount of Annual Allowance you use:
- Buying added pension (especially lump sum purchases)
- Contributing towards other pensions savings such as AVCs
- Getting a promotion that includes a significant pay rise
- Leaving on ill health retirement with an enhancement to your service (Please see separate fact sheet on this specific issue - Impact of Annual Allowance on ill health retirement)
- Transferring in service from another pension scheme under the preferential Club Transfer terms
- Aggregating or linking a previous period of employment from the Civil Service
If you have breached the Annual Allowance due to your Civil Service pension alone (not including any Defined Contribution AVCs you may be making) you will receive a pension saving statement. Statements to those breaching the Annual Allowance in 2011/12 and/or 2012/13 have already been sent out. Please be aware that if you are making other pension contributions, eg to a personal pension, it is your responsibility to assess whether you have breached the Annual Allowance limit across all your pension contributions. You will not receive a pension saving statement unless you have breached the limit in the Civil Service pension alone or you have requested a statement.
If you do incur an Annual Allowance tax bill in relation to your Civil Service pension and it is more than £2,000, then you will have the option of requesting to use the Scheme Pays facility. Scheme Pays is where the pension scheme will pay an amount of tax for you in exchange for a permanent reduction to your pension. Contact your Pension Service Centre if you do wish to use Scheme Pays.
Lifetime Allowance – will reduce from £1.5m to £1.25m from 6 April 2014.
From 6 April 2014 the Lifetime Allowance will reduce from £1.5 million to £1.25 million.
To calculate the value of your pension for Lifetime Allowance purposes, multiply the annual payment by 20, and add any lump sum which is an automatic entitlement. This will mean potentially higher tax bills for some people retiring with a pension of £62,500 or more (premium or nuvos) or £54,350 (plus lump sum) for members of classic.
HMRC have introduced 2 types of protection for members who are affected by reductions to the Lifetime Allowance – Fixed protection 2014 and Individual protection 2014.
You should note that if you are considered applying for Fixed protection 2014, this has to be done by 5th April 2014. It is expected that you’ll be able to apply for Individual protection 2014 from 6 April 2014.
Members who breached the Annual Allowance in 2011-12 may find help-sheet 345 from HMRC useful to assist with calculating whether a charge is due.
You should consider matters carefully before and may wish to consult an independent financial adviser.
Employer Pension Notice 310 from November 2011 gives further information, and includes worked examples of a variety of situations which may be faced by members of the Principal Civil Service Pension Scheme. The information is contained at Annex A to the Employer Pension Notice. Please note that since this notice was issued, it has been announced the Annual Allowance will be reduced to £40,000 and the Lifetime Allowance to £1.25m from 2014/15.