Exceeded Annual Allowance in DB pension, advice please.

Sonatine

Hello,

I have a teachers DB pension, and have just had a letter saying I have gone over my annual allowance in 21-22.

I purchased an additional £500 p.a. in July 2021, and on top of my normal pension payments it says I have gone to £40,500. The letter also says in the three previous years I was at £30,000 each year (I’m rounding for simplicity). I’m surprised with these latter sums as I did faster accrual in one of these years, £750 additional pension in one year and £1000 in another. Yet, the £500 p.a. in 21-22 has put me over!? (inflationary rises putting more growth than on previous years I am guessing?)

Am I right in thinking that because the previous years were under, I do not need to do anything at all, as the over-indulgence this year is offset? i.e. £500 under in a previous year offsets £500 over in the present year.

Out of interest, if I had no offset available, what would I have to pay for going £500 over?

I’ve been provided with the figures for the previous years, but they seem lower than I would expect given I overpaid by more in two of those years. If there is a mistake with those calculations am I still at fault? If I make a mistake with all of this how much trouble am I in?!

Am I right in thinking that the inflationary pressures we have currently could put me over 40k in future years even without any additional pension purchases? I’ve stopped additional pension purchases now because I’m concerned about this.

Is it worth paying for advice on this, or am I in a safe position re the offsetting currently and don’t need to worry about this £500 excess in 21-22.

Thanks for any intel on this, annual allowance in DB does not seem straightforward at all to me.

Regards, sonatine

hugheskevi

I purchased an additional £500 p.a. in July 2021, and on top of my normal pension payments it says I have gone to £40,500. The letter also says in the three previous years I was at £30,000 each year (I’m rounding for simplicity). I’m surprised with these latter sums as I did faster accrual in one of these years, £750 additional pension in one year and £1000 in another. Yet, the £500 p.a. in 21-22 has put me over!? (inflationary rises putting more growth than on previous years I am guessing?)

Even if pensionable earnings remain exactly the same, there will be a difference each year in the pension input due to changing inflation affecting the adjustment to the starting value and revaluation rate.

Am I right in thinking that because the previous years were under, I do not need to do anything at all, as the over-indulgence this year is offset? i.e. £500 under in a previous year offsets £500 over in the present year.

Yes

Out of interest, if I had no offset available, what would I have to pay for going £500 over?

Assuming you are a higher rate taxpayer, £200.

I’ve been provided with the figures for the previous years, but they seem lower than I would expect given I overpaid by more in two of those years. If there is a mistake with those calculations am I still at fault? If I make a mistake with all of this how much trouble am I in?!

If you think the figures are incorrect, query them with the administrator. Otherwise, you can only rely on what is provided and act accordingly. Exceeding the Annual Allowance is not a "fault" - it is a common occurrence, which may result in a tax charge being due (which again is a common occurrence). There is no trouble when you have acted appropriately following receipt of information. There could be charges arising as a result of incorrect information, but then you would complain to the pension scheme that you have suffered losses due to the errors and follow the usual processes.

Am I right in thinking that the inflationary pressures we have currently could put me over 40k in future years even without any additional pension purchases? I’ve stopped additional pension purchases now because I’m concerned about this.

Yes, particularly 2022/23 when the adjustment to starting value will be 3.1% (September 2021 CPI) but the revaluation of CARE benefits will be c10%  (September 2022 CPI).

Is it worth paying for advice on this, or am I in a safe position re the offsetting currently and don’t need to worry about this £500 excess in 21-22.

I doubt any advisor will be able/willing to calculate your pension accrual to validate the figures supplied by the scheme. Based on the information received you do not have any action to take in regard to paying a tax charge.

MX5huggy

Did you have any large pay rises due to maybe getting a promotion? These cause large rises in PIA for Final Salary element of DB pension. 

Sonatine

MX5huggy said:

Did you have any large pay rises due to maybe getting a promotion? These cause large rises in PIA for Final Salary element of DB pension. 

I've had no pay increases except 0-1.5% in the period.

Sonatine

hugheskevi said:

snipped!

Is it worth paying for advice on this, or am I in a safe position re the offsetting currently and don’t need to worry about this £500 excess in 21-22.

I doubt any advisor will be able/willing to calculate your pension accrual to validate the figures supplied by the scheme. Based on the information received you do not have any action to take in regard to paying a tax charge.

Thank you for the clear responses.

cloud_dog

Sonatine said:

hugheskevi said:

snipped!

Is it worth paying for advice on this, or am I in a safe position re the offsetting currently and don’t need to worry about this £500 excess in 21-22.

I doubt any advisor will be able/willing to calculate your pension accrual to validate the figures supplied by the scheme. Based on the information received you do not have any action to take in regard to paying a tax charge.

Thank you for the clear responses.

Hi... My FS DB scheme limits any salary increase to 1%, so I am in a slightly 'more fortunate' (sic) position when getting the PIA calculated.  

I email our scheme administrators (Capita) and provide them with the inflation figures to use and assuming my pensionable salary increases by 1%.  They have historically been 'happy' to respond with the calculation.  I do this well in advance of the end of the FY, e.g. October time, as I am also salary sacrificing via AVCs and need to monitor the AA usage.

Might you be able to do the same, and provide a fictitious guesstimate salary increase (as best you can, or a worst case guess) in order for them to provide a calculation?  In my email I am clear that this is just an estimate and I will not hold them responsible for the calculation, etc, etc (otherwise I'm not sure they would do it).

I appreciate our situations are slightly different, insofar as I know any increase in pensionable salary will be limited to 1%, but might this be an option worth exploring with them?