Date posted: 01/04/2007
Audience: HR Managers
Action: Please issue the attached Office Notice (ON). The ON is most relevant to senior staff so, if possible, please also provide this group with an additional alert.
- The new pensions and tax regime, introduced by the Finance Act 2004, greatly relaxed the limits on saving in a pension. There are now two main controls, the Lifetime Allowance (LTA) and the Annual Allowance. Pension benefits are tested against the LTA at the time of retirement and a tax charge is levied on any benefits in excess of the LTA.
- The Annual Allowance is the maximum that an individual can save into pension schemes, during a tax year, and still get tax relief. For defined benefit pension schemes, such as classic, classic plus and premium, the “amount saved” is not the contributions paid, but is calculated as 10 times the increase in pension plus any increase in lump sum. Where a taxpayer exceeds the Annual Allowance (£215,000 in 2006/7), they are required to declare this to HMRC through the self-assessment process.
- The Annual Allowance has been set at a level which means that it is unlikely to affect the vast majority of civil servants. However, where an individual has a large increase in pension in one year – either as a result of significant pay rise or from aggregating an earlier period of service – it is possible that they could breach it.
- APACs are able to provide members with an Annual Allowance statement which will provide members who are over the Annual Allowance with the information that they need to complete their tax return. Because the vast majority of civil servants will be nowhere near the Annual Allowance, we are instructing APACs to provide these statements on demand rather than as a matter of course for members.
- The attached Office Notice tells staff about the Annual Allowance and reinforces the point that it will impact only on some of the highest paid. The Office Notice also draws attention to the fact that Cabinet Office, as managers of the PCSPS, have decided that the “input period” for the Annual Allowance will run to 31 December each year – this is to ensure that APACs will be in a position to provide information to members as soon as tax returns start dropping through letter boxes. People who think that the Annual Allowance may be an issue for them should contact their APAC for a statement and we would like you to draw the attention of your highest paid people to this Office Notice.
- Specific high earner queries about the Lifetime Allowance and the Annual Allowance should continue to be addressed to LTA@cabinet-office.x.gsi.gov.uk
Enquiries about content, distribution or to receive in a different format
Civil Service Pensions