Information for police officers on the annual allowance for the 2014/15 year.
The Finance Act 2013 introduced a reduction in the Annual Allowance from £50,000 to £40,000 from 6th April 2014.
This change will not affect the majority of officers, however there may be tax implications for those who receive one-off significant increases in pension (e.g. as a result of promotion or retirement), and those in Senior ranks.
As this relates to individual taxation, responsibility falls on the member to ensure the correct amount of tax is paid. Officers are recommended to seek independent tax and financial advice regarding the implications of these changes on their pension.
Remind me how the Annual Allowance works?
If your pension savings exceed the Annual Allowance (AA) during the pension input period (PIP) which runs from 1st April to 31st March, then you may incur a tax charge.
The value of benefits is calculated as 16 times the pension built up in the year.
This means if your pension growth increases by more than £2,500 after inflation, in the year tested, the AA limit will be now be exceeded.
Who will this affect?
This could potentially apply to those who receive one-off significant increases in pension (for instance, as a result of a promotion or ill-health retirement). This is not to say that AA tax charges will necessarily arise, but these groups of officers will need to be aware of the AA and how it could affect them.
It seems very unfair to hit me with a tax charge just because I got a promotion?
If you don’t use up all your annual allowance for any tax year you can carry the unused allowances forward for up to three tax years. This will help protect people who wouldn’t normally breach the annual allowance.
What do I need to do in respect of the AA changes?
You do not need to take any action at this time, other than to be aware of the changes and the implications for your pension savings.
As your pensions administrator, the Scottish Public Pensions Agency (SPPA), has a statutory duty to advise you by 6th October following each year end, if your pension savings in the period 1st April to 31st March have exceeded the AA.
If you are due a tax charge, you will then require to declare this in your self-assessment tax return and pay the tax due in accordance with usual filing/payment deadlines set by HMRC.
If the AA tax charge exceeds £2,000, you may elect an option called “Scheme Pays” which allows the Scheme to pay the tax charge on your behalf and in turn, apply a reduction by way of a pension debit to your pension on retirement.
Where can I get more information on the AA?
Further information on the annual allowance is available on the HMRC website: