Limits and taxation

The Scheme is a registered pension scheme for HM Revenue & Customs (HMRC) purposes. As a registered pension scheme, it enjoys several tax advantages. Consequently, HMRC impose limits on the amount of pension savings you can make each year and build up over your working life. It is your responsibility to ensure you monitor and understand how your pension savings may be affected by the allowances imposed by HMRC.

Annual Allowance

The Annual Allowance is a limit on the amount of pension savings that you can build up that may qualify for tax relief in any one tax year. The period over which this is measured is known as the Pension Input Period (PIP) and runs from 6 April to 5 April.

From 6 April 2016 the Annual Allowance is £40,000. You can carry forward unused allowances from up to three previous PIPs.

Please note your Annual Allowance may be reduced if one or more of the following statements are applicable to you:

  • Your total taxable income in the relevant PIP plus any pension savings made by you or on your behalf during the PIP exceeds £150,000;
  • You have chosen to take benefits from a registered pension scheme as a taxed lump sum; or
  • You take income drawdown or a short-term annuity (or an annuity capable of reducing) from a registered pension scheme.

If pension contributions made by you or on your behalf into any registered pension scheme during a PIP exceed the Annual Allowance you may be liable to an additional tax charge.

Lifetime Allowance

The Lifetime Allowance is a limit on the total value of the pension savings that you can build up during your working life in the Scheme and any other registered pension scheme. This limit applicable from 6 April 2018 is £1.03 million and will increase in line with the Consumer Prices Index (CPI) for each complete tax year thereafter. You may be subject to an additional tax charge if the value of all your pension benefits exceeds the Lifetime Allowance.

Further information on either the Annual Allowance or Lifetime Allowance can be found by visiting

www.pensionsadvisoryservice.org.uk or www.hmrc.gov.uk.

If you elect to take your benefits from any other registered pension arrangement using the new pension flexibilities available, for example in the form of an Uncrystallised Funds Pension Lump Sum (UFPLS) you will trigger, for the tax year you draw your benefits (and for future years), a Money Purchase Annual Allowance. This means your tax efficient contributions to any defined contribution scheme will be more restricted (usually to £4,000).