The Government has set some limits on the amount of pension savings that can benefit from tax relief, which include:
The Annual Allowance (AA)
This is the yearly amount of pension savings you can make in registered pension schemes, including the Plan, which will receive tax relief. The standard AA has been set at £40,000 for the 2018/19 tax year. To estimate your Plan pension against the AA, multiply your estimated annual increase in pension by 16.
The AA that applies to you might be different to the standard AA depending on your circumstances, for example if you meet certain ‘high earner’ criteria or if you start to withdraw from any of your pension savings outside of the Plan. You can read more about this on the HMRC website (see below).
You can still build up pension above the AA but you may receive a tax charge on the excess amount.
The Lifetime Allowance (LTA)
This is the total amount of tax-efficient pension savings that you can make in registered pension schemes, like the Plan, over your working life. The LTA has been set at £1.3 million for the 2018/2019 tax year.
If the total of your pension savings exceeds the LTA, a tax charge will arise on the excess.
Please note: Your annual benefit statement provides an estimate of how your DB section benefits compare with both allowances. It is a member’s responsibility to check their position against the applicable tax allowances and take any action that might be necessary. If you have benefits in other pension Schemes, you will need to consider these when calculating your benefits at retirement.
You can read more about tax allowances, including different ways the AA works and the way your pension will be measured, by going to: www.gov.uk/tax-on-your-private-pension/annual-allowance