A new ‘tax section ‘ has been introduced to our website to provide information on the changes to Annual Allowance and Lifetime Allowance being introduced in 2016. Briefing notes have been created to help you (or your financial advisor) understand these changes.　

HM Revenue and Customs (HMRC) introduced two pension allowances on 6 April 2006, Annual Allowance and Lifetime Allowance.

1) The Annual Allowance (AA) is the amount a pension can grow each year. If your AA is exceeded this gives rise to an AA charge

2) The Lifetime Allowance (LTA) is the maximum amount you can take in pension benefits during your lifetime from all pension schemes, before an additional tax charge is incurred. If the LTA is exceeded, you’ll be subject to the LTA charge.

Changes announced in the Government’s July budget impact on the tax free allowances.　 The tax rules regarding pensions are becoming increasingly complex and more members of the Scheme will be affected as pension tax allowances are lowered.

Lifetime Allowance (LTA)

The LTA is being reduced from £1.25m to £1m from 6 April 2016. Protection against this reduction will be available for you if you’ve already built up large pensions in the Teachers’ Pension Scheme and elsewhere.

If you who already have benefits valued between £1m and £1.25m and potentially there will be a retrospective impact, you are being offered ‘transitional protection’. If you have benefits that are already in excess of £1m or are likely to exceed £1m when you reach your Normal Pension Age, you’ll be eligible for ‘transitional protection’.

From 6 April 2016, there’ll be two types of ‘transitional protection’.

Fixed Protection (FP16) – any member can apply for this protection, whether your benefits exceed £1million or not, provided you don’t have any ‘relevant benefit accrual’. Therefore, you’ll need to consider taking steps to opt out of the Teachers’ Pension Scheme and cease active membership of all other registered pension schemes before 5 April 2016.

Individual Protection (IP16) – you can have this protection if the value of your benefits in registered pension schemes from all sources is between £1million and £1.25 million as at 5 April 2016. It will allow you to build up further benefits without losing this protection.　 However, the future LTA will be a capped at the lower of the value of your benefits at 6 April 2016 and £1.25m.

If you do have protection, then you’ll need to have a reference number from HMRC in respect of the protection before Teachers’ Pensions can calculate your benefits payable.

Annual Allowance (AA)

The Annual Allowance is being reduced for people earning more than £150,000 for the 2016/17 tax year onwards.

The method of reduction is called Tapered Annual Allowance (TAA).　 This is calculated by reducing a person’s annual allowance by £1 for every £2 of adjusted income they accrue over the tax year.

You may not know what your Annual Allowance is until well after the end of the tax year in question and therefore not know where you fall within the Tapered range.

There will be an exemption for if your earnings and other income is less than £110,000.

For more information please visit our tax section