This page provides pension and tax information for all staff and may be of particular interest to high earners.
2014/2015 Pension tax changes
The tax relief applicable to pensions has changed since 2010/11.
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.
Annual Allowance – £50,000 from tax year 2011/12
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), as well as benefits built up in defined benefit schemes such as classic, classic plus, premium and nuvos.
For full details of how the Annual Allowance works, please see the HMRC website (www.hmrc.gov.uk/pensionschemes). Annual allowance is the value of the benefits you have built up and 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 (see 2011 – Tax changes affecting your Civil Service pension for more details)
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 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. 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 introdced 2 types of protection for members who are affected by reductions to the Lifetime Allowance.
For more information on Annual Allowance, Lifetime Allowance and protections visit www.hmrc.gov.uk/pensionschemes
You should consider matters carefully before and may wish to consult an independent financial adviser.
Nothing in this communication should be interpreted as constituting financial advice. You should obtain independent advice on any specific issues concerning you.