In the 2015 Summer Budget, changes to the annual allowance (the maximum value of pension you can earn in a year without incurring tax penalties) were announced. The key changes will not apply until the 2016/17 tax year.
The biggest change is a reduction of the standard annual allowance of £40,000 for those with a total income above £150,000. To determine whether you qualify, you must include the increase in value of your pension over the tax year when calculating your total income (this is around 16 times the increase in your pension over the year and is termed adjusted income).
For every £2 of adjusted income over £150,000 the annual allowance will be reduced by £1, to a maximum reduction of £30,000 (leaving an annual allowance of £10,000). This means there is no further reduction once income reaches £210,000. If your income is £110,000 or less after pension contributions and other reliefs, these rules do not apply.
Testing against the annual allowance for the Teachers’ Pension Scheme currently uses the value of an individuals pension accrual from 1 April to 31 March each year, but this is also due to change in 2016/17, when the value of pension accrual in a particular tax year will be used in the assessment.
Although the rules for the 2015/16 tax year will be more complicated as Teachers’ Pensions transition to the new regime, they are expected to be better for members than the existing annual allowance test.
If you think you may be affected by these changes, Teachers’ Pensions are recommending that you seek independent financial advice.