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Annual Allowance

Pension savings statement guide is now available.

Read our pension savings statement guide (PDF: 526KB) for members who receive a Pension Savings Statement (2017/18).

The Annual Allowance is the maximum amount of tax free growth an individual’s pension can grow by in one year.

The limit:

  • 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.

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.

1995/2008 Scheme

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.

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 (PDF: 282KB). 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:

Tapered Annual Allowance from 6 April 2016 (PDF: 311KB)

Tapered Annual Allowance example (PDF: 158KB)

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 and for the Annual Allowance charge in respect of the excess over £40,000. Schemes are not required to accept a Scheme Pays Election for an Annual Allowance charge for the difference between the Tapered Annual Allowance and the standard Annual Allowance.

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 and calculation examples.

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: 204KB)

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 examples:

Example 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)

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.

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.

Exemptions from the Annual Allowance charge (PDF: 245KB)

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 will 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 will 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 will 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 three months of us receiving this information to send you a statement.

We are unable 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 are a member of the NHS Money Purchase AVC Scheme we will send you a pension savings statement if:

  • contributions paid to the NHS Money Purchase AVC Scheme exceed the standard Annual Allowance; or

     

  • 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)

Example 2016/17 Pension Savings Statement (2015 Scheme)

Example 2017/18 Pension Savings Statement (1995/2008 Scheme) (PDF: 264KB)Example 2017/18 Pension Savings Statement (2015 Scheme) (PDF: 266KB)

Pension Saving Statement FAQs

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.

 

Scheme Pays

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.

NHS Pensions offers both mandatory and voluntary scheme pays.

Mandatory scheme pays

This is available if the pension input amount in either the 1995/2008 or 2015 NHS Pension Scheme is more than the standard annual allowance.

Voluntary scheme pays for tax years 2015/2016 and 2016/2017 

This is available if you are a member of both NHS schemes, the pension input amount in one or both schemes is under the standard annual allowance and the total pension input amount across both schemes is more than the standard annual allowance.

Voluntary scheme pays for tax year 2017/2018 onwards

This is available if either:

  • the pension input amount in either the 1995/2008 or 2015 NHS Pension Scheme is under the standard annual allowance but over the tapered or alternative annual allowance
  • you're a member of both schemes and the total pension input amount, from both scheme when added together, is more than the tapered, alternative or standard annual allowance

From tax year 2017/2018 it's no longer a condition of scheme pays that you have an annual allowance charge of more than £2,000, across all your pension schemes.

If you want to ask for scheme pays, you'll need to complete a Scheme Pays Election Notice (SPE2) and return within HMRC’s deadline of 31 July, in the year following the tax year of the annual allowance charge.

If you're a member of both the 1995/2008 and 2015 NHS Pension Scheme and want both scheme to pay your annual allowance charge these will be separate elections on the SPE2 and you need to tell us how much of the annual allowance charge you want each scheme to pay.

Because we treat them as separate elections, you need to complete parts B and C on the SPE2 before the deadline date. It's not possible to elect for one scheme to pay all 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.

Do not complete this version of the SPE2 if you're asking for voluntary scheme pays for tax year 2017/2018 onwards. A new version of the SPE2 will be available soon.

Scheme Pays Election Notice (SPE2) (Word: 90KB)

Scheme Pays Election guidance notes (PDF: 339KB)

More information about the scheme pays facility we offer can be found in the following factsheets.  These factsheets are currently being reviewed.

Estimating the cost of Scheme Pays (PDF: 338KB)

Scheme Pays facility factsheet (PDF: 220KB)

Scheme Pays facility for transition members (PDF: 120KB)

Scheme Pays recovery factors (PDF: 218KB)

Scheme Pays FAQs (PDF: 196KB)

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 (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: 189KB).