The Government recently announced changes to the Annual Allowance in the Spring Budget 2023. Find out more about the changes.
Annual Allowance is the maximum value of the growth in your pension savings each year that can benefit from tax relief. This is called the Pension Input Amount and this is measured over a defined period of time, known as a Pension Input Period.
The Annual Allowance applies to your entire pension savings with UK registered pension schemes. Any contributions you and your employer have paid into any Defined Contribution pension arrangements (for example Civil Service AVC Schemes, the partnership pension account, a stakeholder or a personal pension outside the Civil Service pension arrangements) are not included on your Pension Savings Statement (PSS).
So, if you have any other pension savings apart from your Civil Service pension, you must also take these into account to determine if you have a tax charge to pay. You’ll need to contact the relevant pension provider(s) to obtain further information.
The Annual Allowance limit for the 2023/24 tax year is £60,000*
*High-income individuals may be subject to a tapered Annual Allowance.
If an individual’s adjusted income is over £260,000 the Annual Allowance from the same tax year is reduced. This means that for every £2 an individual’s adjusted income goes over £260,000, their Annual Allowance for that year reduces by £1. The minimum reduced Annual Allowance an individual can have is £10,000.
Adjusted income is not based on salary alone. If you have other sources of income you may need to include this when calculating your adjusted income.
transferring any service you may have from another pension scheme under the Club Transfer terms;
aggregating or linking a previous period of employment from the Civil Service (joining up your current period of service with a previous period of service).
Are you a member of one or more of the Defined Benefit pension schemes (classic, classic plus, premium, nuvos or alpha)?
For these schemes, the calculation is not related to the pension contributions you make.
The Pension Input Amount for Defined Benefit pension savings is worked out by determining the growth in the benefits from year to year. A value is then placed on this growth using a factor set by HM Revenue & Customs (HMRC).
The Defined Benefits within the Civil Service schemes are calculated in one of two ways:
On a final salary basis (classic, classic plus and premium) using pensionable earnings, length of reckonable service (including any transferred in service) and an accrual rate determined by which section you are a member of within the Civil Service pension scheme.
On a career average basis (nuvos and alpha) where you build up benefits based on a set percentage of your pensionable earnings each year. Your accrued benefits are revalued annually.
Following each Pension Input Period, we calculate the growth of your pension savings. We do this separately for each of the Defined Benefit schemes you are a member of within the Civil Service pension scheme.
Your combined Pension Input Amounts, taken from all of your pension arrangements, should be compared against the Annual Allowance to determine if you have exceeded the limit in any given tax year.
The Pension Input Amount calculation is as follows:
Step 1
We determine the benefits you had built up at the end of the previous Pension Input Period and multiply this by a factor defined by HMRC - currently 16.
Step 2
Any automatic lump sum that you may be eligible for is added to the amount calculated in Step 1.
Step 3
We adjust the total amount in line with inflation; 10.1% for 2023/24. This is the value at the start of the Pension Input Period.
Step 4
We determine the benefits you had built up at the end of the current Pension Input Period and multiply it by the same factor as used in Step 1.
Step 5
We add any automatic lump sum that you may be eligible for to the amount calculated in Step 4.
Step 6
We deduct the value in Step 3 from the value in Step 5 which gives us your Pension Input Amount.
Here’s an example:
Step 1
Accrued pension at end of 2022/23 PIP = £10,000.00 x 16= £160,000.00
Step 2
Plus automatic lump sum (£0.00) = £160,000.00
Step 3
£160,000 x 1.101 = £176, 160.00
Step 4
Accrued pension at end of 2023/24 PIP = £15,000 x 16 = £240,000.00
Step 5
Plus automatic lump sum (£0.00) = £240,000.00
Step 6
£240,000.00 - £176,160.00 = £63,840.00
This is calculated for each scheme you are in.
The calculation for Pension Input Amounts was updated for 23/24, allowing negative amounts from PCSPS to subtract from the alpha Pension Input Amount. However, the overall total cannot be negative. Even if the PCSPS pension input amount is negative, it is recorded as zero.
