Updates to tax on pension benefits and other allowances

This page contains the latest limits for Lifetime Allowance, Annual Allowance and maximum extra pension, along with the current contribution tiers, Pension Increase and career average revaluation rate. The page is updated as and when changes are made.

Annual Allowance

With effect from 6 April 2016, the standard Annual Allowance is reduced (tapered) for high-income individuals

You will be a high-income individual if both of the following apply:

• You have a Threshold Income of more than £110,000;

AND

• You have an Adjusted Income of more than £150,000.

There will be an exemption for members whose threshold income is £110,000 or less regardless of how high their adjusted income is.

For more information on how to calculate the adjusted or threshold income please visit:
https://www.gov.uk/guidance/pension-schemes-work-out-your-tapered-annual-allowance#work-out-your-adjusted-income (This link opens in a new window)

https://www.gov.uk/guidance/pension-schemes-work-out-your-tapered-annual-allowance#work-out-your-threshold-income (This link opens in a new window)

For those who qualify as high-income individuals, this results in a Tapered Annual Allowance (TAA) that reduces by £1 for every £2 of Adjusted Income which is in excess of £150,000. This is subject to a minimum Tapered Annual Allowance of £10,000 on all Adjusted Incomes in excess of £210,000.
 
Further information regarding TAA can be found in the Tax section of the website, or in Briefing note 5, and 6.

It is worth noting that the standard annual allowance still remains at £40,000 for members who are not subject to Tapering and currently there are no plans for this is change.

For more information on the Standard Annual Allowance limits for previous tax years please see Briefing note 3.

Lifetime Allowance

On 06 April 2016, the Lifetime Allowance threshold was reduced to £1 million. It will remain unchanged until 6 April 2018 when it will increase in line with Consumer Price Index (CPI) to £1.03 million. It will then continue to increase each year in line with the annual rate of increase in CPI in the previous September.

The most recent standard lifetime allowances are:

2018/2019 £1,030,000

2017/2018 £1,000,000

2016/2017 £1,000,000

For LTA limits for previous tax years please see Briefing note 1.

Maximum Extra Pension (Pension Flexibilities)

Members of the Teachers' Pension Scheme can increase their pension benefits through flexibilities that allow them to purchase either Additional Pension (final salary and career average arrangements), Faster Accrual (career average only) or through the buy-out of the standard rate of actuarial reduction (career average only). The amount of extra pension available, separately, in each arrangement is a fixed amount, but is increased each scheme year in line with Pension Increase.

For the 2017-2018 scheme year the Pension Increase is 1%, and therefore the maximum amounts will be:

Career average arrangement: £6,600

Final salary arrangement: £6,400

For the 2015-2016 and 2016-2017 scheme years the maximum amounts were:

Career average arrangement: £6,500

Final salary arrangement: £6,300

Contribution Tiers

Contribution tiers remained unchanged from April 2015 to March 2017. As the rate of Consumer Prices Index (CPI) rose by 1% in the year to September 2016, the salary bands for contribution rates for members will increase by 1% with effect from 1 April 2017

Career Average Revaluation Rates

At the beginning of each scheme year the career average accrued earned pension is revalued, at a rate depending on whether you’re an active or deferred member of the scheme. Where you have a break from the scheme but subsequently return after a single break of not more than 5 years your pension will be revalued as active. But where you return after a single break of more than 5 years the pension benefits accrued before the break will continue to be revalued as deferred, with only new accrual being revalued as active.

April 2017: Active Revaluation Rate = 2.6%; Deferred Revaluation Rate = 1.0%

April 2016: Active Revaluation Rate = 1.5%; Deferred Revaluation Rate = 0.0%

Pensions Increase Rates

The Pensions Increase rate applicable to pensions in payment or the revaluation of certain scheme benefits or deferred final average salary calculations are applied in April, and are based on the rate of Consumer Prices Index (CPI) in the year to the preceding September. As the Pensions (Increase) Act 1971 doesn’t provide for a decrease in the rate of public service pensions a negative CPI rate will result in a Pensions Increase rate of 0%.

Year Pensions Increase Rate

2017/2018 = 1.0%

2016/2017 = 0.0%

2015/2016 = 1.2%

2014/2015 = 2.7%

2013/2014 = 2.2%

2012/2013 = 5.2%

Small Pensions (Trivial Commutation)

If the value of all your pension funds from all sources (excluding State Retirement Pension and any dependents pension you are receiving) is of a ‘trivial’ size and you are aged 55 or over (or if you have a GMP pension payable from the scheme, 60 for women and 65 for men), then you can opt to take all of your pension fund as a taxable lump sum (‘commuted’), with no need to take an annual income. Your pension funds are regarded as ‘trivial’ if they amount to the limit provided by HMRC, which can be found online.

Please see http://hmrc.gov.uk/manuals/ptmanual/ptm063500.htm (This link opens in a new window) for the most up-to-date amount.

Normal Pension Age (NPA)

Your Normal Pension Age (or NPA) is the age at which you can claim your pension benefits without them being subject to any actuarial reduction.

If you started teaching before 1 January 2007 and were a member of the Teachers’ Pension Scheme then you will have service and benefits with the Final Salary 80th arrangements. The Normal Pension age for benefits with the Final Salary 80th arrangements is age 60.

If you started teaching on or after 1 January 2007 and before 1 April 2015 and were a member of the Teachers’ Pension Scheme then you will have service and benefits with the Final Salary 60th arrangements. The Normal Pension age for benefits with the Final Salary 60th arrangements is age 65.

If you started teaching on or after 1 April 2015 and were a member of the Teachers’ Pension Scheme then you will have service and benefits with the Career Average arrangements. Your Normal Pension age for benefits with the Career Average arrangements is the same as your State Pension Age provided your State Pension Age is 65 years or over. If your State Pension Age is less than 65 years then your Normal Pension Age will be 65 years. You can check your State Pension Age by visiting the GOV.UK website. www.gov.uk/calculate-state-pension

It's possible that you might have service in more than one set of arrangements, for example if you had a break in service of more than 5 years ending after 1 January 2007, or after 1 April 2012. If you do have service in more than one arrangement, then you'll have a different Normal Pension Age for each arrangement as described above.

Your Benefit Statement will show you which arrangements you have benefits with.

You can find more information on our Retirement centre.

Restricted Salary Provision – Final Salary

If the pensionable salary in the final three years of pensionable employment was increased by more than £5,818 or 10%, the increase in that salary or salaries will be restricted to £5,818 or 10% whichever is the higher. This figure is reviewed each year in line with factors provided by HM Treasury.

Where this restriction applies, any contributions not used in the calculation of average salary will be refunded.

Where a member in the career average arrangement has a Salary Link, the restriction applies to the Salary Link salaries earned in career average service but used to determine the final average salary for final salary benefits.

The previous fixed amount for salary restriction, from April 2015 – March 2017, was £5,800.

Child Pension – Maximum Remuneration from Vocational Training

Children remain eligible to receive a child pension if they’re under the age of 23, are in full-time vocational training (of not less than 2 years’ duration) and are not paid more than £3,113 per annum.

Small Lump Sum (aka Small Pots)

From 27 March 2014, if the actuarial value of your pension benefits from a single source is less than £10,000, you can apply to take them as a Small Lump Sum. You don’t need to take in to account any other pension rights that you hold, whether they’re in payment or are still accruing.

There’s no restriction to the number of Small Lump Sums you can take if you’re a member of several Occupational Pension Schemes, all with benefits below £10,000. If you have any personal pension plans, the anti-avoidance measures prescribed by HM Treasury allow you to take up to 3 ‘small pots’ as a Small Lump Sum.

Please see Briefing Note 8 in the Pension and Tax section for further details