The annual allowance is a limit on the amount that can be contributed to your pension each year, while still receiving tax relief. If your pension savings (from all your pension arrangements) exceed the AA in any one year the excess amount is taxed as income.

The AA applies to your total pension savings for all tax registered pension schemes that you pay into. This means that you will need to obtain the growth in your pension savings from each arrangement you are saving with.

The previous AA, up to April 2023, was £40,000, although this was tapered down if your threshold income was greater than £200,000, and your adjusted income was greater than £240,000. 

The current standard annual allowance is £60,000, and the adjusted income for the tapered annual allowance is £260,000.

Most people are not likely to be affected by the AA because the amount their pension savings increase by during the year will be less than £60,000. 

If you think your total pension savings have increased by more than the AA, you can look into whether you may have ‘carry forward’ from the previous three years to offset the excess over £60,000. We will write to anyone who has exceeded the AA before 6 October the following year.

Pensions in the LGPS grow in line with your pensionable salary, not your pension contributions, so a significant increase in salary can subsequently have a large effect on your pension growth.

If you exceed the AA limit in any year and have a tax charge to pay, you are responsible for reporting this to HMRC on your self assessment tax return. You will need to complete the additional information pages (SA101) of the tax return (relating to ‘Pension savings tax charges) to show the amount by which your total pension input amount exceeds the AA. 

If you are using the 'scheme pays' facility to instruct GMPF to pay your tax charge to HMRC on your behalf, you will need to input the pension scheme tax reference into form SA101. For GMPF this is 00329324RG.

If you are using a paper return you will need to ask for the additional information pages (SA101) to report the information.

If you've never completed a tax return you will need to complete a registration form at least 20 days before the deadline to let HMRC know what's changed and to get a tax return.

The deadline for submitting online tax returns is 31 January after the year in which the tax charge has arisen (or 31 October for paper returns).

For further information to help complete a tax return please visit the gov.uk website.

If you exceed the AA limit but do not have a tax charge to pay (because you have enough carry forward to wipe out the amount by which you exceeded), there is no further action required and you do not need to report anything to HMRC.

Additional information and guidance can be found on the gov.uk website on annual allowance, carrying forward unused annual allowance, and paying and declaring the annual allowance charge . There is also a pension annual allowance calculator available.

You can ask us to pay some or all of your annual allowance tax charge on your behalf in return for a permanent reduction to your LGPS pension. 

If you have exceeded the standard annual allowance by more than £2000, this is done through mandatory scheme pays.

If you have been affected by the tapered annual allowance, this is done through voluntary scheme pays.

To be able to use this facility, you must make sure that certain conditions are met.

With mandatory scheme pays:

• GMPF will pay the tax charge on your behalf in exchange for a permanent reduction to your Local Government Pension.
• The reduction that we apply to your pension is determined by a set of prescribed factors. These factors vary depending on your age and how close to retirement you are.
• The reduction (called your 'scheme pays pension debit') will increase each year in line with inflation. When you come to retire, the pension debit will be adjusted to reflect the date your pension comes into payment. If you retire before or after your normal pension age, the pension debit will be reduced or increased accordingly.
• Scheme pays pension debits are not applied to contingent survivor benefits and other death related benefits.

If you would like to use the scheme pays facility, please contact us for a quote. Please ensure you tell us how much of your annual allowance charge you want us to pay and the tax year in which the annual allowance charge occurred. We will send you a blank election form (P800) with the quote for you to complete should you wish to go ahead with the election.

Assuming that you are not affected by the tapered AA, your scheme pays election will be made on a mandatory basis. This means that once we receive your signed election form (P800), the election is irrevocable and GMPF are jointly and severally liable with you for the annual allowance charge. This means you cannot change your mind once you return your completed form to us, but you do have up to four years to change the tax charge amount if required.

Voluntary scheme pays relates to those affected by the tapered AA, to find out more on this please read the LGPS website.

To be able to use voluntary scheme pays, you must make sure that certain conditions are met.

• If you do not wish to use scheme pays on a voluntary basis, you may wish to pay this element of your tax charge direct to HMRC. In this case, you can still use our scheme pays facility to pay the rest of your tax charge on a mandatory basis.
• There is more information available on the HMRC pensions tax manual to explain which element of your tax charge can be paid on a mandatory basis where you are affected by the tapered AA. You may wish for us to pay your entire tax charge on your behalf, but the remainder would need to be paid on a voluntary basis. You will need to work out for yourself how much of your tax charge can be paid on a mandatory and how much on a voluntary basis. We will need to know this if you wish to use the scheme pays facility.

If you would like to use the scheme pays facility, please contact us for a quote. Please ensure you tell us how much of your annual allowance charge you want us to pay on a mandatory basis and how much (if any) on a voluntary basis, as well as the tax year in which the annual allowance charge occurred. We will send you a blank election form with the quote for you to complete should you wish to go ahead with the election.

• The growth in your LGPS benefits (your pension savings or pension input amount) must exceed the AA in the relevant tax year; and
• Your AA tax charge liability for the relevant tax year, as a result of the growth in your LGPS benefits, must be £2,000 or more; and
• The tax charge you elect for us to pay on your behalf must be solely in respect of the growth in your LGPS pension benefits with GMPF; and
• You must complete and return your signed election form (P800) before the deadline of 31 July following the year after your tax charge arose (for example, for a tax charge in respect of the 2021/22 year, the deadline is 31 July 2023); and
• If you are using the scheme pays facility on a voluntary basis, you have read and understood the Important information – voluntary scheme pays below.

If you retire on ill health grounds with a tier 1 or tier 2 you may be affected by the AA. This is because the enhancement you get with a tier 1 or tier 2 ill health retirement can mean a significant increase in your benefits.

Some members are protected from the AA rules if they meet HMRC's severe ill health criteria.

Once you have retired you are no longer eligible to use our scheme pay facility on a mandatory basis. Therefore, if you have an AA tax charge payable as a result of the increase to your benefits due to your ill health enhancement and would like to use scheme pays, you need to make sure you elect for this facility before you return your retirement paperwork to us.

Lifetime Allowance (LTA) is a limit on the total value of pension benefits you can have before restrictions apply. 

The current standard LTA is £1,073,100 but nobody will face a lifetime allowance charge for exceeding the limit for 2023/24. From April 2024, the Government has said the lifetime allowance will be abolished entirely. 

The lifetime allowance also limits the amount of tax free cash you can take from any pension.

The LTA covers all pension benefits you have in tax registered pension arrangements (including the Local Government Pension Scheme (LGPS)). The limit usually increases each year in line with consumer price indexing (CPI).

LTA does not include:

• any state pensions
• any partner’s or dependant’s pension you may be entitled to.

If the value of your pension benefits when you draw them is more than the LTA or more than any protections you may have; you will have to pay income tax on the excess benefits.

Most people will not be affected by the LTA for 2022/23 but if you have long membership and you are a high earner then you may be at risk of exceeding the LTA when you retire.

Your online My Pension account will show the amount of pension and lump sum (if applicable) payable at your chosen retirement date. By using the calculation above, you can check if you have or are likely to exceed the LTA. The LTA is tested against the pension and lump sum you are going to receive including any added years, additional voluntary contributions or extra pension that you have bought.

The rules for LTA may change in the future.

If you think you may exceed the LTA, there are actions you can take now to reduce your pension growth and capital value:

Early retirement

If you choose to retire before your normal pension age we will reduce the amount of your pension and lump sum, as it will be paid for longer. This will then also reduce the capital value of your benefits. The minimum age we can pay your pension is age 55. You can get an estimate of how much pension you could receive if you retire early by using the calculator on your My Pension account. 

Commute your pension for a bigger lump sum

At retirement you will be given the option to convert up to 25 per cent of your annual pension amount into a tax free lump sum, at a rate of £1 pension into £12 lump sum. Converting annual pension for a larger lump sum can reduce the capital value of your pension benefits. You can find out the maximum tax free lump sum you can take by using the pension calculator on My Pension. 

50/50 Section 

The 50/50 section allows you to pay half the standard contribution rate and build up half your pension benefits; whilst still retaining full life and ill health cover. The 50/50 section slows down your pension growth from the month following your election to move section

Opting out

If you opt out, you will no longer pay into the LGPS and will stop building up any pension benefits. 

Please note, if you opt out of the LGPS with the right to a deferred benefit, you will not be able to link your benefits if you rejoin at a later date. Opting out will impact your life and ill health cover and also any pension payable if you subsequently left employment through redundancy or efficiency. 

If the value of your benefits exceeds the lifetime allowance when you are due to retire, we will write and inform you. We will provide you with the option of taking standard retirement benefits and Working out your pension.

You are allowed to draw up to 25 per cent of the total value of your pension benefits, or 25 per cent of your remaining standard lifetime allowance if this is lower. If you have a protected lifetime allowance, you can draw up to 25 per cent of the value of your protected lifetime allowance.

Getting Advice

We recommend that you obtain independent financial advice before making a decision which may affect your future pension benefits. For help choosing an independent financial adviser, visit the MoneyHelper website.