Annual Allowance

Annual Allowance Frequently Asked Questions

What's the Annual Allowance?
What's carry forward and how does it work?
Where can I see my Annual Allowance?
How's my Pension Input Amount calculated?
How do I check if I've exceeded my Annual Allowance and have a tax charge to pay?
How do I calculate my tax charge?
I've an Annual Allowance tax charge – how's it paid?
What is a Scheme Pay offset and how does it affect my pension?
How do I elect for a Scheme Pay?
How do I complete my Self-Assessment Tax Return for an Annual Allowance charge?
What's Lothian Pension Fund’s PSTR Number?
 

If you still have questions after reading the information provide on the Member Section of our website and in the Help Hub, visit the Contact Us section.  


 

What is the Annual Allowance?

Your pension Annual Allowance is the maximum that you can build up in your pension in a tax year, the maximum amount for the 2020/21 tax year is £40,000 although it may be lower if you are affected by Tapering or have triggered the Money Purchase Annual Allowance (MPAA).

As Lothian Pension Fund is a Defined Benefit Scheme, this is calculated based on the increase in your benefits each year instead of the amount you or your employer have paid in.

You can find out more information regarding Annual Allowance on the Government website and by reading these factsheets which include information on both the Annual and Lifetime Allowances.

 

What is carry forward and how does it work?

If you've exceeded your Annual Allowance in a given year, you can carry forward any leftover allowance from the previous three years to cover the excess e.g. if you exceeded the 2020/21 Annual Allowance, you can carry forward unused allowance from 2017/18, 2018/19 and 2019/20.

This means that while you may have exceeded your Annual Allowance, the taxable amount exceeding the Annual Allowance limit may be lower. If you look at your Annual Allowance information on the My Pension Online service, you'll see that we automatically apply any carry forward based on the information held for you in previous years. This is based on the assumption that you've a standard Annual Allowance of £40,000 for each year and have only contributed to Lothian Pension Fund during the input period.

You can see further information on unused Annual Allowance and carry forward here and also check your Annual Allowance using the calculator

 

Where can I view my Annual Allowance?

You can view details of your Annual Allowance through the My Pension Online service, just log in and go to “Employment Detail” then choose “Financial Details and Annual Allowance” and you can see the information that we hold.

Please note that Annual Allowance was implemented in 2008 so you won't find any data prior to that year.



 

How is my Pension Input Amount calculated?

The calculation is a formula set by HMRC, where:

The opening value is the amount of pension benefits that have built up so far at the end of the previous pension input period.

  1. Start with your annual pension built up so far at the end of the previous pension input period.
  2. Multiply this amount by 16.
  3. Add any separate lump sum built up at the end of the previous pension input period.
  4. Increase this by the Consumer Price Index for the previous September - this increased amount is your opening value.

The closing value is the amount of pension benefits that has built up so far at the end of the pension input period.

  1. Start with your annual pension built up so far at the end of the pension input period.
  2. Multiply this amount by 16.
  3. Add the value of any separate lump sum you would receive - this is your closing value.

Deduct the opening value from the closing value. If the difference is a:

  • negative amount, then your pension savings are nil for that period
  • positive amount, then this is the amount of your pension savings.

 

 

 

 

How do I check if I have exceeded my Annual Allowance/ have a tax charge to pay?

You can view your Annual Allowance details through My Pension Online, which will detail the Pension Input Amount you have used with Lothian Pension Fund for each year.

If you've been contributing to any other pensions, you'll need to check these for your pension input details also.

You can then use this information in HMRC’s pension annual allowance calculator. The calculator will be able to confirm if you have exceeded your Annual Allowance, and takes any previous years’ carry forward into consideration.

 

 

How do I calculate my tax charge?

It's your responsibility to calculate any tax charge due in respect of your Annual Allowance. Lothian Pension Fund is unable to calculate any tax charges due for your Annual Allowance and would advise that you seek independent financial advice if you are unsure of what is due.

A guide to calculating your tax charge can be found on the HMRC website along with a working sheet and further information

 

 

 

I have an Annual Allowance tax charge – how is it paid?

If you have exceeded your Annual Allowance, and a tax charge is payables, you must declare this on your Self-Assessment tax return – even if you wish Lothian Pension Fund to pay the tax charge on your behalf.

If the tax charge is less than £2,000 you are responsible for paying this and do not have the option of Lothian Pension Fund paying this on your behalf.

If your tax charge is £2,000 or more then you can apply for a Scheme Pay where Lothian Pension Fund will pay the tax charge on your behalf and a debit will be applied to your annual pension to cover the cost.

Further information is available on the HMRC website.

 

 

What is a Scheme Pay offset and how does it affect my pension?

A Scheme Pay offset is where you elect for Lothian Pension Fund to pay an Annual Allowance tax charge to HMRC on your behalf and deduction is applied to your annual pension to cover the cost.

The Pension Offset = Annual Allowance Tax Charge ÷ Age Related Factor

The age related factors are set by the Government Actuaries Department and are based on your age end of the Pension Input Period that the tax charge relates to e.g. if your tax charge was for the 2020/21 tax year, the factor would be based on your age as at 5 April 2021.

The latest factors are detailed in the CETV Workbook 2020 v2, tab 0-605 for those under their Normal Pension Age and tab 0-607 for those over their Normal Pension Age, which can be found under the 2020 section of the Scottish Public Pensions Agency website. The factors are interpolated for those who have a non-integer Normal Pension Age.

The pension debit will increase each year in line with inflation and will be deducted from your pension when it goes into payment. The debit will be reduced/ increased if you choose to take payment of your pension early/ late. The debit is applied to your pension for life but has no impact on any spouse or children’s pensions payable in the event of your death.

 

 

 

How do I elect for a Scheme Pay?

If you wish for Lothian Pension Fund to pay an Annual Allowance tax charge on your behalf, you must complete the Scheme Pay Election Form. You can then upload the form through the My Pension Online service and we will then action your request.

Please remember that you must declare this on your Self-Assessment tax return – even though Lothian Pension Fund paying the tax charge on your behalf.

 

 

How do I complete my Self-Assessment Tax Return for an Annual Allowance charge?

You must complete Box 10 of your Self-Assessment Tax Return if you have exceeded your Annual Allowance and a tax charge is payable. You can also find guidance on completing your tax return. Lothian Pension Fund can't advise on how to complete your tax return therefore if your remain unsure after reading the guidance, we advise you to seek independent advice.

 

 

 

What is Lothian Pension Fund’s PSTR Number?

Our PSTR number is 00816815RX.