Pensions allowances

Pensions allowances

Annual allowance

The annual allowance is the maximum amount by which the value of an individual's pension savings across all the registered pension schemes of which they are a member may increase in any year without tax penalties arising. The annual allowance charge is levied where the annual allowance is exceeded. The amount of the annual allowance has changed over time and is set by order from the Treasury. It is also possible to carry forward unused annual allowance from the previous three tax years.

Unlike other types of allowances, considerations relating to the annual allowance are relevant at the point funds are paid into the registered pension scheme.

If the annual amount saved under the registered pension schemes by or on behalf of an individual exceeds the annual allowance, a tax charge known as the annual allowance charge will arise. An annual allowance charge may, in certain circumstances, be paid by the scheme through a system known as Scheme Pays.

For further information, see Practice Notes: The annual allowance and Using Scheme Pays to pay the annual allowance charge.

The lump sum allowance and lump sum and

To view the latest version of this document and thousands of others like it, sign-in with LexisNexis or register for a free trial.

TAKE A FREE TRIAL

Latest Pensions News

Scheme did not have duty of care regarding member’s individual tax advice (Dr D, CAS-70911-G6X6)

Pensions analysis: In the determination of Dr D, CAS-70911-G6X6, the Pensions Ombudsman partially upheld a complaint by a member who incurred a large tax charge after withdrawing his entire pension benefits at age 75. As the member approached age 75, he failed to act on the scheme’s recommended options or to take tax advice and his funds were automatically switched to a cash fund at age 75. He then withdrew his entire benefits, resulting in the tax charge. The Ombudsman found that the scheme was not responsible for the tax consequences of the member's actions and so was not under a duty of care to advise the member on the tax consequences of withdrawing his entire pension at that stage. Martin Scott of gunnercooke LLP looks at the decision.

Lack of justifiable reason for trustee failure to reach unanimous consent on pension transfer (Mr N, CAS-49148-R5W6)

Pensions analysis: In the determination of Mr N (CAS-49148-R5W6), the Pensions Ombudsman has upheld a complaint about an incorrectly calculated transfer value which involved the underpayment of Mr N’s share of funds to another scheme. The trustees had a joint responsibility to ensure that the correct benefits were paid. The Ombudsman directed the trustees to rectify the situation by authorising the payment of the underpaid amount, together with interest, despite the repeated failure on the part of the trustees to reach the unanimous consent required to do so under the scheme’s rules. Martin Scott of gunnercooke LLP looks at the decision.

No grounds for higher pension increases despite past overpayments as scheme rules specify increases of RPI capped at 3% (Mr N, CAS-102084-N1D3)

Pensions analysis: In the determination of Mr N, CAS-102084-N1D3, the Pensions Ombudsman has rejected a complaint about the indexation level on a pension increase. The Ombudsman found that while the scheme rules specified increases of RPI capped at 3%, there were no grounds for higher increases despite past overpayments. The determination highlights the precedence of scheme’s governing documents and the need for consistent and updated scheme literature. Martin Scott of gunnercooke LLP looks at the decision.

Absence of valid reasons for delay in submitting complaint provides no grounds for extending three-year limitation period (Dr N, CAS-93557-F1X2)

Pensions analysis: In the determination of Dr N, CAS-93557-F1X2, the Pensions Ombudsman has rejected a complaint about an additional tax charge caused by the payment of a pension arrears lump sum. Dr N's 2014 incapacity pension application had been initially rejected, but after a successful 2021 appeal, his pension was backdated, resulting in additional tax charges. The Pensions Ombudsman found Dr N was not too incapacitated to appeal the 2014 decision and saw no grounds to extend the three-year limitation period. Martin Scott of gunnercooke LLP looks at the decision.