The annual allowance is the maximum amount of tax free growth an individual’s pension can grow by in one year.
- covers all contributions to pension schemes but not the State Pension
- is set by HMRC
If an individual exceeds this limit they may need to pay an annual allowance charge to HMRC
The majority of members should not be affected by the annual allowance but there are a number of circumstances where members could see significant growth in their NHS Pension Scheme benefits that takes them over the annual allowance.
Our factsheet Your guide to NHS Pensions and the annual allowance (PDF: 65KB) explains what the annual allowance is.
Read our pension savings guide (PDF: 338KB) if you've received an annual allowance pension savings statement. It explains why you have been sent a statement and how to understand it.
A printable version of the pensions savings guide (PDF: 388KB) is also available.
Watch our annual allowance video to understand:
- the current annual allowance limit
- circumstances which may make you exceed the annual allowance
- how the annual allowance is calculated
- how we inform you if you exceed the annual allowance
- what to do if you have a charge
Download the video transcript (PDF: 107KB).
The circumstances are listed in annual allowance - does it affect me? (PDF: 96.5KB).
You should consider whether you are affected by one of these circumstances before contacting NHS Pensions about annual allowance.
If you're a new member to the 2015 Scheme or a transition member, you should read the annual allowance transition members factsheet (PDF: 282KB).
You should consider whether you're affected by one of these circumstances before contacting NHS Pensions about annual allowance.
From 6 April 2011, the annual allowance was reduced and the method of calculation was changed, the information confirms how this affects pension growth in the NHS Pension Scheme.
The table below shows the annual allowance limits from 6 April 2011:
|Tax year||Annual allowance|
The Finance (No 2) Act 2015 introduced 2 important changes to annual allowance:
- To adjust the pension input period during the 2015/16 tax year so that it becomes aligned with the tax year from 6 April 2016.
Transitional rules have been brought in for the 2015/16 tax year to make sure that pension savings up to £80,000 made before 9 July 2015 are protected from an annual allowance charge.
- To taper the annual allowance for members who have a ‘threshold income’ of over £110,000 and an ‘adjusted income’ of £150,000 from 6 April 2016.
From 6 April 2020 the ‘threshold income’ was increased to £200,000 and the ‘adjusted income’ to £240,000.
The tapered annual allowance
Read our factsheet Your guide to NHS Pensions and the tapered annual allowance (PDF: 68KB) to find out more and understand if you are affected by the tapered annual allowance.
Our tapered annual allowance factsheet (PDF: 232KB) has examples of tapered annual allowance calculations.
HMRC has published guidance on how to calculate your tapered annual allowance, including a calculator, on their website.
From the 2017 to 2018 tax year, we've extended our voluntary scheme pays facility to include members with an annual allowance charge as a result of having a tapered annual allowance.
More information can be found in the scheme pays election guide (PDF: 840KB).
If the annual allowance affects you:
How the annual allowance is calculated
We've recently made an improvement to the best of the last 3 years assessment for all annual allowance calculations.
This new improved calculation may change information that has already been provided as changing to a “best of 3” principle could change the value of a pension input amount and any unused allowances from the last 3 tax years, that can be offset against any charges. If this is the case, we'll be happy to confirm the calculation again.
This change will only be relevant to a minority of members but it is agreed that it is the fairest assessment of the pension growth at the time of calculation.
This page contains various pieces of information about how the annual allowance is calculated.The annual allowance and HMRC transitional rules for 2015/16 (PDF: 302KB)Process for calculating annual allowance factsheet (PDF: 341KB)2015-2016 annual allowance calculations (PDF: 265KB)Annual allowance and the practitioner Flexibilities Value Earnings Credit (FVEC) (PDF: 254KB)Annual allowance - money purchase and alternative annual allowance (PDF: 233KB)
Annual Allowance examplesExample of annual allowance not exceeded (1995 Section member) (PDF: 100KB)Example of annual allowance not exceeded (2008 Section member) (PDF: 219KB)Example of annual allowance exceeded due to promotion (PDF: 121KB)Example of annual allowance exceeded due to clinical excellence award (PDF: 121KB)Example of annual allowance where there is nil input value (PDF: 177KB)Example of annual allowance exceeded due to promotion and purchase of additional pension (PDF: 121KB)Example of annual allowance exceeded due to crystallisation of benefits (PDF: 102KB)
For practitioners members about the annual allowance examples
Practitioners earn pensions based on their earnings throughout their career. These are re-valued to maintain a current value and are known as 'career average re-valued earnings' (CARE) pensions.
Practitioners who have also worked as NHS Staff, or as a GP registrar, may also have pension earned on the final salary method as well as on the CARE method.
Members who have this type of mixed employment will have additional calculations applied to their pension records to make sure that the most favourable pension is paid to them.
Once the pension has been calculated steps 2, 3 and 4 for the opening value and steps 2 and 3 for the closing value can be followed.
Exceeding the annual allowance
We'll only provide you (the member) with the pension input amount for the relevant tax year and the three previous tax years if available.
It's your responsibility for establishing and calculating any annual allowance charge and report this to HMRC through your Self Assessment tax return.
A calculator to aid with this is available on HMRCs website.
If you exceed the annual allowance there may be an annual charge to pay. This is not at a fixed rate but depends on how much taxable income you have and the amount of pension saving in excess of the annual allowance.
To calculate this you need to work out the rate of tax that would be charged if your excess pension savings were added to your taxable income and taxed based on your marginal income tax rate.
If you have any unused annual allowance from the previous three tax years this may be used to offset against an annual allowance charge in the relevant tax year.
You can ‘look back’ up to three previous tax years to see if you have any unused allowance from these years and if so, you may be able to ‘carry forward’ the unused allowance and add it to your annual allowance limit in the current tax year.
This may prevent an annual allowance charge being payable.
If you had exceeded the annual allowance by £15,000 in 2011/12, but had unused annual allowance from the 3 previous tax years of £25,000, then you would not be liable for an annual allowance charge.
It's your responsibility to check whether you have any used allowance from the preceding 3 tax years to carry forward to the relevant tax year being assessed.
The pension saving statement provided by NHS Pensions will include the pension input amounts for the previous 3 tax years assuming the information is available from the NHS employer.
Informing you about annual allowance
This section tells you when NHS Pensions will inform members if their NHS Pension growth in the 1995/2008 Scheme or the 2015 Scheme is more than the standard annual allowance.
We'll send you a pension savings statement if:
- growth in your 1995/2008 Scheme or 2015 Scheme benefits is more than the standard annual allowance
- you are a transition member, with pension entitlement in both NHS Pension Schemes, and the total growth in your NHS benefits across both the 1995/2008 Pension Scheme and the 2015 NHS Pension Scheme exceeds the standard annual allowance. You'll receive a statement from each NHS Scheme
Provided we receive the necessary membership information from your NHS employer or a third party to calculate your NHS pension growth by 6 July, we'll write to you by 6 October if you have exceeded the standard annual allowance.
If we receive the membership information after 6 July, we have 3 months of us receiving this information to send you a statement.
We are not able to calculate growth in NHS benefits for medical practitioners until the completion of your Annual Certificate of Pensionable Profit and NHS Pensions receiving confirmation of your certified year end earnings.
If we receive membership information with uncertified earnings when you have not left the NHS Scheme, this may result in you receiving a statement based on these ‘estimated’ earnings.
If this has been the case, you should write to NHS Pensions requesting a revised pension savings statement when you have completed your annual certificate and know that your certified year end earnings have been sent to us.
If you're a member of the NHS Money Purchase AVC Scheme, we'll send you a pension savings statement if, either:
- contributions paid to the NHS Money Purchase AVC Scheme exceed the standard Annual Allowance
- you have flexibly accessed your money purchase arrangement and contributions to the NHS Money Purchase AVC Scheme exceed the money purchase annual allowance
You can request an on demand pension savings statement if you do not expect the growth of your NHS benefits to exceed the standard annual allowance, or you have pension savings with another registered pension scheme.Example 2015/16 Pension Saving Statement (1995/2008 Scheme) (PDF: 272KB)Example 2015/16 Pension Saving Statement (2015 Scheme) (PDF: 271KB)Example 2016/17 Pension Savings Statement (1995/2008 Scheme)(PDF: 297KB)Example 2016/17 Pension Savings Statement (2015 Scheme)(PDF: 293KB)Example 2017/18 Pension Savings Statement (1995/2008 Scheme) (PDF: 264KB)Example 2017/18 Pension Savings Statement (2015 Scheme) (PDF: 266KB)Example 2018-19 Pensions Savings Statement (1995-2008 Scheme) (PDF:185KB)Example 2018-19 Pensions Savings Statement (2015 Scheme) (PDF:185KB)Pension Savings Statement Guide (PDF: 526KB)Pension Saving Statement FAQs (PDF: 262KB)
The Pension Savings Statement is not an Annual Benefit Statement and does not include an estimate of NHS Pension Scheme benefits.
More information about Total Reward Statements and Annual Benefit Statements can be found on the Total Reward Statements website.
Information for independent financial advisors (IFAs)
If a pensions savings statement has been generated for a member we are able to confirm the figures to an IFA by email or over the phone, where an IFA has permission to communicate with us on their client’s behalf.
If you’re calling us to enquire about the figures, we will share these with you by email during the call.
Where a manual pensions savings statement needs to be created, we may not be able to provide figures until the pensions savings statement is available.
We do not have access to payroll information for our members as we receive an annual update from employers. Therefore we cannot provide details of monthly hours and sessions, or pensionable pay and contributions. IFAs will need to contact a member’s employer(s) for this information.
If you have an annual allowance charge you can either pay the charge directly to HMRC yourself or share the responsibility for the payment with NHS Pensions using the scheme pays facility.
This is known as a scheme pays election.
NHS Pensions offers both mandatory and voluntary scheme pays facilities.
Read our factsheet Your guide to NHS Pensions and the Scheme Pays election (PDF: 67KB) to find out more about how scheme pays works, the difference between mandatory and voluntary scheme pays and how to make a scheme pays election.
Mandatory scheme pays
This is only available if the growth in your pension benefits, the pension input amount in either the 1995/2008 NHS Pension Scheme or the 2015 NHS Pension Scheme is more than the standard annual allowance.
If your request is accepted, the NHS Pension Scheme will be responsible for paying the charge to HMRC by the deadline.
Voluntary scheme pays
You can use voluntary scheme pays if you are a member of both the 1995/2008 NHS Pension Scheme and the 2015 NHS Pension Scheme and:
- your pension input amount in one or both schemes is under the standard annual allowance; and
- your total pension input amount across both schemes is more than the standard annual allowance.
From April 2017, we extended our voluntary scheme pays facility so you can now ask us to pay an annual allowance charge if:
- the growth in your benefits in the 1995/2008 NHS Pension Scheme or the 2015 NHS Pension Scheme is under the standard annual allowance of £40,000 but over your tapered or alternative annual allowance; or
- in total, the growth across both schemes when added together is more than your tapered or alternative annual allowance.
It is no longer a requirement for voluntary scheme pays to have an annual allowance charge of more than £2,000.
You can now ask us to pay 100% of your annual allowance charge for your NHS Pension Scheme benefits to HMRC, either using our mandatory scheme pays facility, or a mixture of mandatory and our extended voluntary scheme pays facilities. If your election is accepted, we will notify you what we will pay and whether it will be paid by mandatory or voluntary scheme pays, or both facilities.
The deadline for submission of voluntary scheme pays elections is 31 July in the year following the tax year your annual allowance charge was incurred in. However, if we pay some or all of your annual allowance charge using our voluntary scheme pays facility you will remain responsible for the charge and any interest charges if the payment is received by HMRC after its tax bill deadline of 31 January.
You can find more information on the voluntary scheme pays deadlines and the NHS Pensions quarterly payment schedule in our scheme pays election guide.
Making a scheme pays election
If you want to ask for voluntary and/or mandatory scheme pays, you'll need to complete a scheme pays election (SPE2) and return it to us within HMRC’s deadline of 31 July, in the year following the tax year of the annual allowance charge.
So for example, if you would like to make a scheme pays election for 2020/21 this must be received by 31 July 2022.
If you're a member of both the 1995/2008 NHS Pension Scheme and the 2015 NHS Pension Scheme and want both NHS scheme to pay some or all of your annual allowance charge these are counted as separate elections on the SPE2 and you need to tell us how much of the annual allowance charge you want each scheme to pay.
The scheme pays election guide explains how you can share your annual allowance charge between the two NHS schemes.
Because we treat them as separate elections, you need to complete both parts on the SPE2 before the deadline date. It's not possible to elect for one NHS scheme to pay 100% of your charge.
If you have not received a pension savings statement you can estimate your liability to an annual allowance charge in order to meet HMRC’s deadline. You should not delay your election to wait for a statement.
Scheme pays election (SPE2)(V12) (PDF: 260KB)Scheme pays election guide (PDF: 840KB)
More information about the scheme pays facility read our factsheets:Estimating the cost of scheme pays (PDF: 343KB)Scheme pays recovery factors (PDF: 278KB)Scheme Pays FAQs (PDF: 193KB)
If you have an annual allowance charge in a tax year before 2017/18, read our factsheets:Scheme pays facility factsheet (PDF: 220KB)Scheme pays facility for transition members (PDF: 120KB)
Extension of voluntary scheme pays deadline for 2019/20
In 2020 we announced that we were extending the voluntary scheme pays deadline for 2018/19 to support members of the NHS Pension Scheme who are front line healthcare workers dealing with the impact of the Coronavirus (COVID-19) pandemic.
Due to the ongoing impact of COVID-19 we have taken the decision to also extend the voluntary scheme pays deadline for 2019/20. This has been extended from 31 July 2021 to 31 March 2022.
We do not have the authority to extend the mandatory scheme pays election deadline for 2019/20 as this is confirmed in legislation. The 2019/20 mandatory scheme pays deadline remains 31 July 2021.
Submitting your scheme pays election before the mandatory deadline allows us to consider your election under the mandatory scheme pays facility or a combination of the mandatory and voluntary scheme pays facilities. If paid under the mandatory scheme pays facility, the NHS Pension Scheme is responsible for paying your tax charge to HMRC by their deadline.
If you apply to use scheme pays and we pay some or all of your annual allowance charge using our voluntary scheme pays facility, you remain responsible for the charge until the payment is made and for any interest that may be incurred for payments made after HMRCs tax bill deadline.
The extended voluntary scheme pays deadline for 2019/20 coincides with the 31 March 2022 deadline for clinicians applying to the 2019/20 Pension Annual Allowance Charge Compensation Scheme.
Submitting a scheme pays election if you are about to retire
If you are about to retire, you should try to submit your scheme pays election before you retire. This allows us to consider your election under the mandatory scheme pays facility or a combination of the mandatory and voluntary scheme pays facilities.
When paid through the mandatory scheme pays facility, the NHS Pension Scheme is responsible for paying your tax charge to HMRC by their deadline.
If it isn’t possible to submit your scheme pays election before you retire, we will now accept scheme pays elections after you have retired, as long as your election is received before the relevant scheme pays deadline for the tax year in question.
Any scheme pays elections submitted after retirement will only be considered under the voluntary scheme pays facility.
If your election is accepted after retirement you will remain responsible for the charge and any interest charges if the payment is received by HMRC after its tax bill deadline of 31 January. Your benefits will reduce because of any acceptance of an election after retirement. We may also need to put in place arrangements to recover any pension overpayments that have been caused because of your scheme pays election being accepted after retirement. We will write to you to confirm your reduced benefits.
2019/20 Pension Annual Allowance Charge Compensation Policy
In November 2019, NHS England and NHS Improvement (NHSEI) announced that clinical staff who go over their annual allowance for the 2019/20 tax year and who use scheme pays to pay the tax charge will be compensated in retirement for any reduction to their NHS Pension Scheme benefits.
If you are a clinician in England and have received a pension savings statement for the 2019/20 tax year or think you may have an annual allowance charge in respect of your NHS Pension Scheme benefits, you can find more information about the NHSEI 2019/20 Pension Annual Allowance Charge Compensation policy, whether you're eligible and how to apply on the NHSEI website.
NHS Wales has also published details of their policy. If you are a clinician in Wales and have received a pension savings statement for the 2019/20 tax year or think you may have an annual allowance charge in respect of your NHS Pension Scheme benefits, you can find more information about the 2019/20 Pension Annual Allowance Charge Compensation Policy (Wales), whether you're eligible and how to apply on the NHS Confed website.
To apply for either the English or Welsh policy, you and your employing authority will need to complete an application form to confirm your clinical eligibility for the scheme. You can find the relevant application form on the NHSEI website for England or NHS Confed website for Wales.
If you work in both England and Wales, you can find information for members working for more than one employer in the FAQs on the respective websites.
To apply you will need to use scheme pays to pay your tax charge. To use scheme pays you must make an application using the scheme pays election (SPE2) form (available in the scheme pays section of this webpage). If you've already submitted a scheme pays election (SPE2) for 2019/20 you will not need to submit a new scheme pays election.
This section contains annual allowance factsheets providing information about particular circumstances. These include the alternative annual allowance as a result of flexibly accessing money purchase benefits and exemptions to the annual allowance.
Read the following factsheets for more information:Annual Allowance general FAQs (PDF: 165KB)
There are a range of different terms and phrases used to explain or describe the annual allowance and we provide explanations in the annual allowance glossary factsheet (PDF: 127KB).