Pensions Annual Allowance Charge (AAC)
With the reduction of the Annual Allowance (AA) to £40,000 and (tapering to £10,000 for income over £150,000), the generosity of the 1995/2008 and 2015 Pension Funds for Dentists is causing a real and immediate problem for many of our clients.
The AA is exceeded where the total of your:
- NHS Pension fund(s) growth, as detailed in the NHS Pensions Statement(s) plus
- Grossed up value of any private personal pension contributions
exceed your AA threshold.
Your superannuable earnings determine your level of personal contributions and in addition, the NHS contributes a set % to your fund.
You will receive tax relief on your personal contributions to the fund(s) via your tax return.
It is important to note that it is not the quantum of contributions to the funds that determines whether your annual allowance has been exceeded but the growth in the value of the fund(s).
NHS Annual Allowance Statements
From the 2016/2017 tax year, the NHS Business Services Authority (BSA) should now be issuing annual pensions statements to all members. These statements detail the pension fund growth figures for the prior 4 tax years.
The NHS Annual Allowance Statements assume a full AA of £40,000 is available to you. These statements will not include:
- Details of any personal pension contributions or
- Any tapering of the AA.
Historically, NHS Pensions only issued letters where:
- Calculations indicated that the pension find growth exceeded the Annual allowance.
- Where a direct request from the member is made for the figures.
Unfortunately, NHS Pension were not reliable in either respect and were known to inform members that they only issued statements where the AA was exceeded and if none had been issued there was no annual allowance excess to report.
Where your AA has been exceeded, it is possible to submit an election, Form SPE2, to NHS Pensions.
Initially, it was not possible to make an election for any tax arising on an excess over a reduced AA. However, from 2017/2018 a relaxation of this rule applies.
For more information please refer to:
Take Appropriate Advice
If, as a consequence of the AA being exceeded, you are considering:
- A Scheme Pays election or,
- A reduction or cessation of contributions to your fund.
We would strongly recommend speaking to your IFA. These discussions are crucial to your retirement planning and will have an impact on your pension outcome on retirement.
If you have received a NHS Annual Allowance letter in the past and have not discussed this with us, please get in touch.