Skip to main content Skip to footer

Annual Allowance

The Annual Allowance is the maximum amount of tax free growth an individual’s pension can grow by in one year. Generally the limit covers all contributions to pension schemes but not the State Pension. The limit is set by HMRC and 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.

1995/2008 Scheme

The circumstances are listed in Annual Allowance - does it affect me? You should consider whether you are affected by one of these circumstances before contacting NHS Pensions about Annual Allowance.

2015 Scheme

If you are a new member to the 2015 Scheme or a transition member, you should read the Annual Allowance transition members factsheet as well as the Flexibility Value Earnings Credit and its effect on the 2015/2016 Annual Allowance. You should consider whether you are 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
2011/12 £50,000
2012/13 £50,000
2013/14 £50,000
2014/15 £40,000
2015/16 £80,000
2016/17 £40,000
2017/18 £40,000

The Finance (No 2) Act 2015 introduced two important changes to Annual Allowance:

  1. 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.
  2. 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.

The Tapered Annual Allowance

The following factsheets have important information about the changes:

The Annual Allowance and HMRC transitional rules for 2015/16

Tapered Annual Allowance from 6 April 2016

Tapered Annual Allowance example

HMRC has published guidance on how to calculate your tapered Annual Allowance, including a calculator, on their website.

Important note if you are subject to the tapered Annual Allowance and have an Annual Allowance charge you should be aware that HMRC have not changed the criteria for schemes to accept a Scheme Pays Election. This means if you have an Annual Allowance charge because of the tapered Annual Allowance you can only ask for Scheme Pays if the pension input amount with this Scheme exceeds £40,000.

If the Annual Allowance affects you:

How the Annual Allowance is calculated

This section provides you with information on how the Annual Allowance is calculated, calculation examples and the Annual Allowance Calculator/ Estimator Tool.

This page contains various pieces of information about how the Annual Allowance is calculated.

Process for calculating Annual Allowance factsheet

2015-2016 Annual Allowance calculations

Annual Allowance examples:

Example of Annual Allowance not exceeded (1995 Section member)

Example of Annual Allowance not exceeded (2008 Section member)

Example of Annual Allowance exceeded due to promotion

Example of Annual Allowance exceeded due to Clinical Excellence Award

Example of Annual Allowance where there is nil input value

Example of Annual Allowance exceeded due to promotion and purchase of Additional Pension

Example of Annual Allowance exceeded due to Crystallisation of Benefits

Note 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 ensure 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.

Calculators

Accompanying notes for using the Estimator Tool

2011/12

1995 Section

2008 Section

2012/13

1995 Section

2008 Section

2013/14

1995 Section

2008 Section

2014/15

1995 Section

2008 Section

2015/16

1995 Section

2008 Section

2015 Scheme

HMRC have published a pension savings Annual Allowance calculator to aid members in calculating their unused Annual Allowance and establishing whether they have an Annual Allowance charge.

Exceeding the Annual Allowance

 This section provides you with information about exceeding the Annual Allowance.

NHS Pensions will only provide you (the member) with the pension input amount for the relevant tax year and the three previous tax years if available. It is your responsibility for establishing and calculating any Annual Allowance charge. 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.

Example:

If you had exceeded the Annual Allowance by £15,000 in 2011/12 but had unused Annual Allowance from the three previous tax years of £25,000 then you would not be liable for an Annual Allowance Charge. It is the your responsibility to check whether you have any used allowance from the preceding three 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 three tax years assuming the information is available from the NHS employer.

Informing you about Annual Allowance

This section provides you with information about how NHS Pensions will inform members if they exceed the Annual Allowance within the NHS Pension Scheme.

If you are over the Annual Allowance limit with either the NHS Pension Scheme or NHS Additional Voluntary Contributions (AVC) Scheme then NHS Pensions will send you a Pension Savings Statement (PSS). We will not automatically send a PSS when the Annual Allowance is not exceeded.

Please remember that the NHS Pension Scheme and the NHS AVC Scheme are separately registered pension schemes and a member will only be supplied a Pension Savings Statement from the scheme where the pension input amount exceeds the Annual Allowance. If a member has more than one pension provider they will need to ask each provider for a Pension Savings Statement.

Provided all the relevant information is available to NHS Pensions from your NHS employer(s) to calculate the pension input amount, NHS Pensions will write to members by the 6th of October each year if they have exceeded the Annual Allowance.

  • For the tax year 2011/12 - 6 October 2013 (HMRC allowed all pension schemes until 6 October 2013 to provide a Pension Savings Statement)
  • For the tax year 2012/13 - 6 October 2013
  • For the tax year subsequent tax year - 6 October after the end of the tax year.

If NHS Pensions have not received all of the information from your employer, a statement will be sent within three months of receiving the information.

The Pension Savings Statement will include the following information:

  • the amount of the Annual Allowance for the relevant tax year
  • the pension input amount for the pension input period
  • the pension input amount for the previous three pension input periods
  • the amount of the Annual Allowance in the previous three relevant tax years

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.

You are able to request Pension Savings Statements from NHS Pensions if you do not exceed the Annual Allowance limit. However, you only need to do this if you have pension provisions with other pension providers and need the information to work out your total Annual Allowance position.

 

Example 2014/15 Pension Saving Statement

Example 2015/16 Pension Saving Statement (1995/2008 Scheme)

Example 2015/16 Pension Saving Statement (2015 Scheme)

2015/16 Pension Saving Statement FAQs

 

Provisional statements for Practitioner members:

 

In October 2014 NHS Pensions ceased issuing provisional statements to avoid false Annual Allowance positions being created through the use of estimated earnings. This decision was taken after discussion and agreement with the Department of Health, the British Medical Association and the British Dental Association.

 

A statement based on your final certified earnings will automatically be issued to you if the Annual Allowance is exceeded. This follows the completion of the Annual Certificate of Pensionable Profit and NHS Pensions receiving your final certified earnings

 

This process is in line with HMRC’s Annual Allowance requirements

 

Scheme Pays

If the growth in your NHS pension benefits exceeds the Annual Allowance you can ask NHS Pensions to pay your Annual Allowance charge. This section provides you with information about Scheme Pays.

This section of the Annual Allowance pages provides a range of information about the Scheme Pays facility operated by NHS Pensions.

Estimating the cost of Scheme Pays

Scheme Pays factsheet

Scheme Pays facility for transition members

Scheme Pays recovery factors

Scheme Pays FAQs

NHS Pensions no longer provides Provisional Pension Savings Statements for Type 1 and 2 Medical Practitioners and non-GP Providers. Only statements based on final certified earnings will be issued where growth in NHS benefits is in excess of the Annual Allowance or one is requested.            

HMRC confirm that in order to meet the Scheme Pays deadline, members should estimate their liability to an Annual Allowance charge if they do not have available information. Members should not delay their election to wait for a statement.

Following receipt of an initial election notice, within HMRC’s deadline, you must complete a further election if there is a change to the amount of your Annual Allowance charge. This could occur if they initially estimated their liability and following receipt of a Pension Savings Statement your Annual Allowance charge has either increased or decreased.

HMRC’s deadline for making an initial election is 31 July in the year following the tax year of the Annual Allowance charge.

Example:

In the tax year 2014/15 an individual has an Annual Allowance charge and can apply for Scheme Pays. By 31 January 2016 they have to complete their self-assessment and declare if they are paying the Annual Allowance charge or they are requesting their scheme to pay. If they elect for Scheme Pays their election for Scheme Pays must reach the Scheme by 31 July 2016.

Further information about scheme pays elections and for changing an existing election notice are confirmed in the ‘Scheme Pays Election Guidance Notes' factsheet below.

Please remember if a Scheme Pays election is made on estimated figures confirmation must be sent when confirmed Annual Allowance figures are known – HMRC have given a deadline of 4 years from the Scheme Pays deadline from the end of the tax-year to which the liability relates. Failure to send a revised election may cause you to under or overpay the Annual Allowance charge to HMRC and will affect the payment of your benefits at retirement.

If you want to make a Scheme Pays election you will need the documents below:

Scheme Pays Election Notice (SPE2)

Scheme Pays Election guidance notes

Please ensure that you are using the current version of the Scheme Pays Election Notice (SPE2) from the above. Incorrect or out of date forms may be returned.

Additional information

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

Exemptions from the Annual Allowance charge

Annual Allowance - Money Purchase and Alternative Annual Allowance

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.