- Scheme benefits
The Annual Allowance
The Annual Allowance (AA) is the total amount of pension savings that a UK taxpayer can build up each tax year without incurring a tax penalty. This includes both your contributions and Company contributions.
The AA is measured over the Scheme's Pension Input Period (PIP). The Scheme's PIP is 6 April - 5 April, in line with the UK tax year.
Since 6 April 2014 the AA has been £40,000. However, if you think that you're going to exceed it, you can carry forward any unused annual allowance from the three previous tax years.
Before April 2015, each Scheme was allowed to choose its own PIP. However, from April 2015, the UK Government decided that all Scheme PIPs had to be in line with the tax year. In order to facilitate this, the AA for the 2015/2016 tax year was increased to £80,000 (plus any available carry forward) for the first period, which ran from 6 April 2015 to 8 July 2015, and £0 for the second period, which ran from 9 July 2015 to 5 April 2016. Any unused AA from the first period could be carried forward into the second period (maximum carry forward of £40,000).
The maximum AA of £40,000 was reintroduced as of 6 April 2016, and applies to the 2019/20 and 2020/2021 tax years. However, in certain situations your AA may be reduced.
The Tapered Annual Allowance (TAA) applies to members with a 'threshold' income of over £200,000 and an 'adjusted' income of over £240,000.
Your threshold income is your total income from all sources. As well as your salary, this would also include for example: rental or investment income.
Your adjusted income is your threshold income plus any pension contributions you've made into the Scheme and the increase in the value of your pension. It doesn't include any money you’ve given to charity.
If your threshold income OR your adjusted income is £200,000 or less, your AA won’t change.
If your adjusted income exceeds £240,000 AND your threshold income is over £200,000, your AA will be less than £40,000. In this situation, for every £2 that your adjusted income exceeds £240,000, your AA will reduce by £1. The minimum AA will be £4,000, but this will only affect individuals with an adjusted income of £312,000 or more.
The examples below show how this calculation may work.
|Example One||Example Two|
|Income before pension contributions (threshold income)||£210,000||£210,000|
|All pension contributions||£40,000||£35,000|
|Adjusted income exceeds £240,000 by:||£9,000||£5,000|
|Reduction in AA (50% of adjusted income above £240,000)||£4,500||£2,500|
You may be able to carry forward any unused AA from the last three tax years to increase your AA for the current tax year. Our online calculator will also help you understand how the carry forward provisions work.
This is only a summary of the changes.
The Money Purchase Annual Allowance (MPAA) applies to members who choose to take some of their defined contribution (DC) benefits flexibly, while still making contributions into a DC scheme. The MPAA was reduced from £10,000 to £4,000 with effect from 6 April 2017. This means that only £4,000 of the total £40,000 AA can be made up of contributions into a DC scheme.
If members take some of their DC benefits flexibly but continue to accrue benefits in one of the Group's Defined Benefit (DB) pension schemes, the full AA of £40,000 still applies.
If members take some of their DC benefits flexibly but continue to accrue benefits in a DB scheme and make contributions into a DC scheme, the MPAA will apply to the DC benefits, and the remaining AA will apply to the DB benefits.
Visit GOV.UK to find out more.
The Lifetime Allowance
The Lifetime Allowance (LTA) is the total value of the pension arrangements, not including the State Pension, which a UK taxpayer can build up without paying extra tax. For the 2019/2020 tax year the LTA is £1,055,000 which will increase to £1,073,100 for the 2020/2021 tax year.
The amount of LTA you’ve used will usually be expressed as a percentage. In order to find your total LTA, you'll need to add all the percentages from all your pension arrangements together.
If you think you might be close to or over the LTA, or you have registered for tax protection, you should contact your Scheme administrator.
If you've registered with HMRC for fixed protection (including fixed protection 2014) or enhanced protection from the LTA charge, joining a pension scheme invalidates this protection.
To ensure that you're not automatically enrolled into Your Tomorrow and that you don't lose your protected status, please email GroupPensions@LloydsBanking.com and provide a copy of your protection certificate.
The Group will then be able to record your protection which will usually prevent you from being automatically enrolled. You'll retain your protection and not incur an LTA tax charge (subject to HMRC requirements). You should do this before your auto enrolment date, or as part of the recruitment process if you’re a new joiner.
If you've not been able to provide a copy of your certificate in time and you've been automatically enrolled, if you opt out within one month of being automatically enrolled, HMRC will usually treat you as if you'd never joined a pension scheme and you’ll retain your protection.
You must provide a copy of your certificate to ensure that you’re excluded for future auto enrolment.
If you do lose fixed or enhanced protection, you must inform HMRC that protection no longer applies (within 90 days of losing it) or face financial penalties.
You can find more information about protection from the LTA charge at www.gov.uk
Find out more
You can also refer to the HMRC website
It's your responsibility to check your benefits and ensure you remain within the government limits. If you’re impacted by the changes but unsure what action to take, you should take independent financial advice. You can find an adviser at www.unbiased.co.uk