The Annual Allowance is the maximum amount you can add to your pension savings each year without paying a tax charge. Contributions to personal pensions and growth in the value of work pensions such as the NHS Pension both count towards the allowance.
Note that for the NHS Pension and other final salary schemes, it is not the value of your contributions that count for Annual Allowance purposes but the amount by which your pension entitlement grows over the year. Circumstances in which your pension entitlement might grow in excess of the Annual Allowance include:
Even when the above do not apply, you could still exceed the Annual Allowance if you have also paid contributions to other pension savings arrangements including a Money Purchase Additional Voluntary (MPAVC) Scheme.
NHS Pensions will contact you automatically if growth in your NHS benefits exceeds the standard Annual Allowance of £40,000. However, the Annual Allowance is tapered for high earners (those earning £150,000+) and a Money Purchase Annual Allowance limit of £4,000 applies to anyone who has taken income flexibly from a personal pension (e.g. through flexible drawdown). NHS Pensions will not take into account your personal Annual Allowance if this is lower than £40,000 or any contributions you have made to other schemes. You may therefore still have an Annual Allowance excess even if NHS Pensions do not contact you automatically. If you think you may be affected you should request a statement from NHS Pensions and an accountant or financial adviser can help you understand your overall Annual Allowance position.
For further information about this article, please contact Richard Higgs CFP FPFS on 0117 966 5699 or firstname.lastname@example.org.