LGPS - Calculating the Annual Allowance

amandajc

I am trying to fund retirement at 58 using a SIPP to bridge the gap before my LGPS pension becomes payable at 66 (although I shall probably take a small reduction in the 2014 portion of the scheme and begin drawing the pension at 65). I have paid around £12,000 into a SIPP this tax year and I already had around £20,000 in a FSAVC. I hope to have enough to reach my goal by April 2017 - therefore I need to put as much as I can into the SIPP over the next two tax years. I am a basic tax payer but will be below the tax threshold when I draw the SIPP.

However, I am mindful of the annual allowance and I know that I need to know how much my DB pension has increased by in any given year in order to be able to calculate this. The other limiting factors being my salary, the £40,000 pa overall allowance and how much I am also paying into LGPS AVCs and my small FSAVC.

Am I right to read the following entry on my LGPS pension statement as being the figure I need to use:

“Total value of your … pension fund annual allowance for 2013/2014 = £5380″

...and can I roughly calculate the equivalent figure for tax year 2014/15 now that the scheme has changed to a 1/49th scheme using (salary/49 x 16 plus CPI)?

I know I will also have significant amounts to carry over from the previous 3 tax years but I would like to be able to see where the figures should come from and what kind of ballpark area I am working with.

jem16

Carry forward will only allow you to contribute more than the annual allowance of £40k but it will still not allow any more than 100% of earnings limit as far as tax relief is concerned.

hyubh

amandajc wrote: »

Am I right to read the following entry on my LGPS pension statement as being the figure I need to use:

“Total value of your … pension fund annual allowance for 2013/2014 = £5380″

Should be, though I'd double check it includes the AVC conts (I would expect it does).

...and can I roughly calculate the equivalent figure for tax year 2014/15 now that the scheme has changed to a 1/49th scheme using (salary/49 x 16 plus CPI)?

Yes, though keep in mind the value of your final salary membership isn't static given you maintain the final salary link while you're an active member. Roughly speaking:

- As you say, the AA calc for a DB pension takes the notional value of it at the start of the input period or scheme year (actual pension earned so far x 16), uprated for inflation, and subtracts that from the notional value of it at the end of the input period or scheme year. If there's any money purchase add-ons like your AVC, the contributions for it are then just added on to the notional DB increase.

- Because your final salary reckonable membership is now static, that in itself is a neutral factor for AA purposes.

- Looking ahead, because the LGPS uses PI (currently CPI) for its CARE revaluation rate, which is also what you use to uprate the input pension value in a AA calculation, once you have more than a year's worth of CARE benefits the revaluation of your previous year's total will also be neutral for AA purposes. (At the end of 2015/16 your CARE accrual from 2014/15 will be uprated by PI, then your CARE accrual from 2014/15 added to it.)

- As such, on the CARE side your AA assessment total for a year is just your pensionable pay during it multiplied by the scheme's accrual rate (currently 1/49).

- If your rate of pay has risen above CPI over the course of the year however, then the value of your FS membership will have increased in real terms, and so your AA assessment total will go up accordingly; conversely, if your rate of pay falls in real terms then your AA total may actually fall (only 'may' though given the FS LGPS does have some pay protections built in).

- Another complication would be if you benefit from the CARE LGPS's 'underpin' - if you were within 10 years of your normal retirment age when the scheme went CARE for future accrual, then your benefits are the better of FS + CARE or all FS.

If it came to it you could if you wanted to opt out for a month to make your FS benefits deferred, then elect not to put them back together again when you rejoined the scheme the next month. I'd double check the figures if you're thinking of doing that however.

amandajc

Many thanks hyubh, this is exactly the information I needed to be able to make a fairly accurate assessment of the value added to my LGPS pension each year and therefore how much I can contribute to my SIPP and still receive tax relief.

Jem17 and Jamesd (in another thread) have also clarified the situation regarding the carry forward of the allowance due to salary received in previous years, ie, there isn't any :-) - I am limited to the level of my earnings in any one year. I feel a lot more confident about where I stand with the rules on this.

Thanks again all.