- Those with higher salaries;
- Those with long service;
- Those with other pension arrangements, including added years;
- Those who have already used previous years' allowances;
- Those with external UK taxable income.
Annual Allowance Guidance
The Annual Allowance (AA) limits the contributions and/or pension benefits that you can build up each year without additional tax charges.
If your pension benefits build up by more than your available Annual Allowance (including any carried forward from previous years) the excess is taxed at your marginal rate.
USS members can get more information on the USS website.
What does this guidance cover?
The purpose of this guidance is to support and complement the information available on the USS and HMRC websites. This webpage also sets out some additional guidance on how the University’s Pensions Office can assist you, and what information they can obtain for you on pension tax reliefs.
It should be noted that an employee is responsible for calculating their own personal AA value, as ultimately this is a personal taxation matter. It is the responsibility of the employee to manage their own allowances and tax position. This is to provide the required notification to HMRC of a potential charge, and for the completion and submission of any HMRC Self Assessment tax return.
For more in-depth information about the AA, please refer to the HMRC website.
For many who exceed the AA because of a spike in salary, the carry forward rules may be useful. This is a mechanism where you are able to offset any unused allowance from up to three previous scheme years against your excess pension savings. This is likely to be the solution for many members who have any unused previous years’ allowances to reduce or eliminate a tax charge, particularly for those who have not exceeded the limit in previous years but experience a one-off spike in the AA as a result of a promotion / increase in pensionable salary.
Contact the Pensions Office for AA calculations, please note the information is also on Annual Member Statements.
USS Money Purchase (Prudential) AVCs (MPAVCs) and USS Investment Builder AVCs.
If you currently pay these, you may wish to consider reducing or ceasing these payments for the remainder of the current tax year, and then consider if it is appropriate to resume in subsequent tax years. If you decide to reduce or cease your MPAVCs or discuss the level of contributions, you will need to contact Prudential directly - call the customer call centre on 0845 600 0343.
If, after considering the actions and options available to you, including those above, and it is identified there is a potential AA charge, as you are likely to exceed the AA limit in the current year, there are other options below to consider.
If carry forward is not sufficient, there are a number of options to adjust your benefits from USS.
USS tax relief options
These were introduced to assist members who may have or are likely to have an AA or Lifetime Allowance charge. Find out more about these options here.
If, after weighing up the choices and USS options available, and after taking obtaining financial advice, it is concluded you need to choose one of the options available from USS, you should proceed as follows:
Make an election for one of the USS tax relief options
An election form (separate form for each of the tax relief limits options) can be downloaded directly from the USS website, noting that USS requires 28 days notice in writing before the date of the election. All completed Election Forms should be sent to the Pensions Office, not to USS directly.
Pay the charge
If, after considering all the actions and options available to you it is identified that you have an AA tax charge, this has to be notified to HMRC by completion of a self-assessment tax return. This is regardless of whether you normally complete a tax return or not. Further information about how you inform HMRC is available on the HMRC website.
If the tax charge is above £2,000 and the total amount of your pension savings in the pension year for the same tax year has exceeded the AA, you can choose to have some or all of your AA charge paid by USS. There will be a reduction to the value of your USS benefits at retirement in exchange for the payment of the tax charge. The USS website has a factsheet about Scheme Pays. Further information about the Annual Allowance and the Scheme Pays option is available at the HMRC website.
The University has a pension cash supplement option for those adversely affected by pension tax allowances, subject to certain criteria.
USS will supply a statement to members with benefits over the AA by 6 October each year.
The AA is currently £40,000.
The Government has restricted pension tax relief for high earners by introducing a tapered reduction in the amount of AA for individuals with income (including the value of any pension contributions) of over £150,000, and who have an income (excluding pension contributions) in excess of £110,000. For more information please visit the HMRC site.
The Pensions Office can explain the background to pension taxation and explain information provided by USS. We cannot give you advice or help with tax planning. For this you may want to consult your accountant, or an independent financial adviser.
Pensions Office, 23-38 Hythe Bridge Street, Oxford, OX1 2ET
Tel: (01865) 616133