LGPS Annual Allowance Calculation and Question on Timing

marycanary

Hello

I am in the Local Government Pension Scheme, and I would be grateful if some clever person could check my estimated Annual Allowance use calculation for this year, 2022/23. I have gone around and around trying to understand the calculation until my head is spinning. I am not taking a lump sum from this pension, and for these purposes, I have ignored the few days at the start/end of the tax year.

Wage - £70500

Accrual Rate - 1/49

AVC paid during the financial year to date - £5000

Input Amount

Benefit at March '22 - £10,740

Input Amount = 10,740*16*1.101 = £189196

Output Amount

70500/49 = £1439

10740+1439 =£12179

12179*16= £194864

197904+5000= £199864

AA Used

199864-189196= £10668

I used inflation in September '22 at 10.1%. Is that right? The AA amount does not seem large compared to other years but perhaps that's because inflation is high and wage increases are not. On the other hand, I could have totally misunderstood the process

Question 2

I also have a deferred LGPS pension which contains a mandatory lump sum. I think that it would be advisable to delay starting this pension until the Monday of the week after the start of the 2023/24 tax year, that is 10th April (or the 11th as the 10th is a bank holiday). This is to allow the lump sum to be uprated by inflation in September 2022. Again, is this correct or have I got the wrong end of the stick?

Thank you in advance.

Mary

zagfles

No you need to use the Sept inflation before the start of the tax year. See https://www.gov.uk/hmrc-internal-manuals/pensions-tax-manual/ptm053301

Have you tried this tool?

https://www.lgpsmember.org/help-and-support/tools-and-calculators/annual-allowance-quick-check-tool/

hugheskevi

The starting amount will be adjusted by September 2021 CPI rate (not 2022 as you use above), which was 3.1%.

Is there no revaluation (either CPI or link to earnings) of the pension accrued as at the start of the year to take into account when calculating closing value of pension?

marycanary

zagfles said:

No you need to use the Sept inflation before the start of the tax year. See https://www.gov.uk/hmrc-internal-manuals/pensions-tax-manual/ptm053301
Thank you I'lve tried again with 3.1%

Have you tried this tool?

https://www.lgpsmember.org/help-and-support/tools-and-calculators/annual-allowance-quick-check-tool/

 Yes but it will not calculate an estimate for 2022/23 which is the figure I want

Thank you for your reply 

Input Amount

Benefit at March '22 - £10,740

Input Amount = 10,740*16*1.031 = £177,167

AA used 
199,864-177,167= £22,697

This looks closer to previous years

marycanary

hugheskevi said:

Is there no revaluation (either CPI or link to earnings) of the pension accrued as at the start of the year to take into account when calculating closing value of pension?

Thank you for your reply. 

Sorry I do not understand the question

zagfles

marycanary said:

hugheskevi said:

Is there no revaluation (either CPI or link to earnings) of the pension accrued as at the start of the year to take into account when calculating closing value of pension?

Thank you for your reply. 

Sorry I do not understand the question

The pension you had accrued up to March 22 will be increased due to inflation if it's CARE and/or maybe salary if you still have a final salary link, so you need to account for that accrual as well as the 1/49th you earned in the year.

If the scheme was all CARE uses the same inflation as the AA calculation then they'd cancel, but usually there's a lag, not sure what the LGPS uses, if it uses this year's inflation then it could be significantly higher.