Please see attached for more information on Annual Allowance for the year 2016/17: FPS Annual allowance factsheet April 2017
If you take a new job or role where your salary increases by a large amount, you may be facing a large tax bill due to you exceeding your annual allowance.
Your annual allowance is the maximum amount your pension ‘pot’ can increase by in a single year.
From 6 April 2011, the annual allowance has reduced from £255,000 to £50,000.
From 6th April 2014 this was £40,000. We will write to you if we believe you are going to exceed this limit.
For the tax year 2015 /2016, the period, (Pension Input Period), used to calculate your annual allowance has been amended from 1st April – 31st March, to 6th April to 5th April. For this 15/16 year only, the calculation will be split into two parts: First period being: 1st April 2015 – 8th July 2015; and the second period being 9th July 2015 to 5th April 2016. To allow for this change, there will be an Annual Allowance of £80,000 for the first period, with a maximum carry forward of any unused allowance to the second period of £40,000 (this is in addition to any unused allowance carry forward from previous three years).
If you are currently paying into other pension arrangements in addition to the Firefighters Pension Scheme and you think you might be affected, please contact us. Alternatively, you can find more information at: http://www.hmrc.gov.uk/tools/pension-allowance/
If you are a high earner or receive a large increase in pay, the new allowance may sound high but if you receive a large increase in pay, through promotion or a new role, you may find you have exceeded the limit and you could face a large tax bill.
Any pension growth in excess of the annual allowance is subject to tax at your highest tax rate.
Before accepting a new job offer, please take time to find out if any increase in salary would take you over the limits.
Where the increase in the value of the benefits exceeds £40,000, the excess will be subject to tax at your highest tax rate. However, it will be possible to carry forward any unused annual allowance from the last three tax years; therefore someone who exceeds the annual allowance in 2011/12 will be able to use any unused allowance from 2010/11, 2009/10 and 2008/09.
If after taking into account the previous years unused allowances and you still exceed the £40,000 allowance there is a ‘scheme pays option’ which will allow eligible members to request that the scheme pays the tax charge with a reduction in your benefits being made, rather than you paying tax out of your current income.
Please note that if you exceed the annual allowance you will also have to complete a self-assessment tax return by 31 January following the tax year in question stating the amount of the Annual Allowance Charge that is to be met by you or the scheme administrator.