Your annual allowance

Your responsibility

It is your personal responsibility to declare the tax liability of your combined pensions saving when limits are exceeded to HMRC.

It is also your responsibility to follow HMRC timetables for notifications, elections and payments.

Your annual allowance - video

Pensions are a tax-efficient way of saving for your life after work. But, there are limits to the amount of pension you can build up before you have to pay extra tax. 

The annual allowance is the amount by which the value of your pension benefits may increase in a year without you having to pay a tax charge.

If the value of your pension savings in a year (including pension savings outside of the LGPS) are more than the annual allowance, the excess will be taxed as income.

It is your responsibility to pay the right amount of tax.

The annual allowance rate

The allowance rate has changed over the years. If you want to know what the rates were in previous years, view the annual allowance factsheet at the bottom of this page.

From 6 April 2016 to 5 April 2017 onwards, you will pay a tax charge if your pension value increases by more than £40,000 in a year. Even if it does increase by more than that, you are likely to have unused allowances carried forward from previous years.

If your LGPS pension savings exceed the standard allowance in any year ending 5 April, Pension Services will contact you by 6 October to let you know.

Exceeding the limit

If you exceed the annual allowance in any year you are responsible for reporting this to HMRC on your self-assessment tax return.

We will notify you if:

• your pension savings in the LGPS, (plus the amount of any AVCs you have paid) exceed the standard annual allowance in a year
• we believe you have exceeded the MPAA in a year.

We must inform you by no later than the 6 October which follows the end of the financial year.

We are not obliged to inform you if you exceed the tapered annual allowance.

Check if your pension saving may exceed the limit

Use the annual allowance tool to check if your LGPS pension saving in a tax year is likely to exceed the annual allowance.

People most likely to be affected

You are most likely to be affected if one or more of the statements below applies to you.

• You have membership to the LGPS that was built up in the final salary section (built up before 1 April 2014 in England and Wales, or before 1 April 2015 in Scotland) and you receive a significant pay increase.
• You transferred in membership from another public service pension scheme in the past which retains a final salary link and you receive a significant pay increase.
• You pay a high level of additional contributions.
• You are a higher earner.
• You transfer pension rights into the LGPS from a previous public service pension scheme under the preferential club transfer rules and your salary (full-time equivalent) on joining the LGPS is higher than the salary you earned when you left the previous scheme.
• You combine a previous LGPS pension benefit that was built up in the final salary section of the LGPS with your current pension account and your salary (full-time equivalent) has increased significantly since leaving the scheme.
• You have accessed flexible benefits on or after 6 April 2015.

How to slow down your pension build-up

You can slow down your pension build-up to avoid exceeding the annual allowance by joining the 50/50 section.

In the 50/50 section of the LGPS you pay half your normal contributions and build up half your normal pension, but you retain full life cover and ill health cover. Find out more about paying less through the 50/50 section on the LGPS member website.

How the annual allowance is calculated

The increase in the value of your pension savings in the LGPS in a year is calculated by working out the value of your benefits immediately before the start of the tax year (6 April), increasing the value by inflation and then comparing it with the value of your benefits at the end of the tax year (5 April).

In the LGPS, the value of your pension benefits is calculated by:

1. multiplying the amount of your annual pension by 16
2. adding any lump sum you are automatically entitled to from the pension scheme
3. adding any additional voluntary contributions (AVCs) you or your employer has paid during the year. 

If the increase in the value of your pension is over £40,000, you may have to pay a tax charge.

Where you have more than one active pension

The annual allowance will include any pension you have outside of the LGPS if you have been paying into it during the same year. You do not get a separate allowance for each pension you are paying into.

For example, if the value increase of your LGPS pension was £30,000 in 2019/20 and the value increase of a second pension was £15,000 in the same year, your total is £45,000. So, you have exceeded your annual allowance. You may have to pay a tax charge unless you have an unused allowance from previous years.

Unused annual allowance

You can 'carry forward' unused allowance from the three previous years. This means that even if you exceed the limit one year, you may not have to pay the tax charge. 

Tapered annual allowance for higher earners

From the tax year 2016/17 onwards, the annual allowance is tapered for high earning individuals. The annual allowance will be reduced if your ‘threshold income’ and ‘adjusted income’ exceed the limits in a year.

For every £2 that your adjusted income exceeds the limit, your annual allowance is tapered down by £1. Your annual allowance cannot be reduced below the minimum that applies. The limits that apply changed for the 2020/21 year.

Further information about tapered allowances

Read the annual allowance factsheet at the bottom of this page.

Annual allowance flexible benefit access

If you have any benefits in a money purchase (defined contribution) pension arrangement which you have flexibly accessed on or after 6 April 2015 then the money purchase annual allowance (MPAA) rules may apply. 

Further information about flexible benefit access

Read the annual allowance factsheet at the bottom of this page, or, contact Pension Services.

Paying a tax charge from your pension benefits

You can ask Pension Services to pay a tax charge on your behalf from your pension benefits in the following circumstances.

• You have an annual allowance tax charge of more than £2,000, and your pension savings in the LGPS alone have increased in the year by more than the annual allowance.

Contact Pension Services no later than 31 July in the year following the end of the year to which the annual allowance charge relates.

You can use the 'scheme pays election' form to tell Pension Services that you are asking the Oxfordshire Pension Fund to pay all or part of your annual allowance charge.

If you are retiring

If you are retiring (and take all of your benefits from the LGPS), contact Pension Services before you become entitled to those benefits.

Other circumstances

Pension Services may also agree to pay some or all of an annual allowance charge on your behalf in other circumstances. Contact your pension fund for more information. 

Further information and guidance

• Annual Allowance factsheet (pdf format, 177Kb)

Learn more about tax on your private pension contributions on the GOV.UK website.

For help with pension scheme queries write to HMRC:  

Pension Schemes Services

HM Revenue and Customs

BX9 1GH

United Kingdom

The tax reference number for Oxfordshire County Council Local Government Pension Scheme Fund is PSTR 00328822RP.