Annual Allowance

Anyone who pays into a pension scheme has an Annual Allowance (AA). The AA is set by the Government, and is the amount of pension that you can accrue in a financial year before a tax charge is payable.  The AA for 2011/2012 is £50,000.

Your AA is calculated using the increased value of your LG benefits from one financial year to the next.  If this sum is over £50,000, a tax charge is payable.

The following example shows how the Pensions Section calculates an Annual Allowance for Councillors.

EXAMPLE ONLY

STEP 1

At 31^st March 2011, John has 9 years membership.  He has a career average pay of £10,000.  His benefits are worth:

Annual Pension:

£10,000 x (9/80) = £1,125

Multiply inflation increase (set by the HM Treasury)

e.g. 1.02 = £1,148 current value

Lump Sum:

£10,000 x (3 x 9/80) = £3,375

Multiply inflation increase (set by the HM Treasury)

e.g. 1.02 = £3,443 current value

STEP 2

At 31^st March 2012 John will have 10 years membership, earning a career average pay of £11,000.  His benefits are worth:

Annual Pension:

£11,000 x (10/80) = £1,375

Lump Sum:

£11,000 x (3 x 10/80) = £4,125

STEP 3

Calculate the difference in benefit values:

Annual Pension:

£1,375 - £1,148 = £227

Lump Sum:

£4,125 - £3,443 = £682

STEP 4

Calculate the increase in benefit value over the 2 financial years:

Annual Pension:

£227 x 16* = £3,632

* 16 is a generic factor set by the Government and used in all cases

Lump Sum:                          £682

Actual Increase:                 £3,632 + £682 = £4,314

As the Annual Allowance limit is £50,000, John has not exceeded it as he has only used £4,314 of his AA.

If he had exceeded his AA limit for that financial year, he could use any leftover allowance from the previous 3 financial years.  The Clwyd Pension Fund would determine this for you.