The easy way to keep track of your annual and lifetime allowances

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Eight out of ten USS members are unlikely to reach limits set by HMRC (based on their salary) on the overall amount of pension savings before incurring a tax charge. However, we all need to know how much we can save to take advantage of the full tax relief available to us. Our article Pensions tax relief in a nutshell explains how the value of your USS benefits relates to the allowances set by HMRC and the ways you can manage your tax position with ease.

HMRC allow you to save

What is the value of your USS benefits?

Your USS annual member statement provides:

  • The value for tax purposes of your USS pensions savings made in the 2016/17 tax year – this is the figure to use when looking at your annual allowance (AA)
  • The value for tax purposes of your USS benefits earned since you became a member – this is the figure to use when looking at your lifetime allowance (LTA)

These figures are important if you are looking to maximise your tax relief or minimise tax charges – as explained below.

There are allowances but no limits

There is no limit to the amount you can save for your retirement with USS. However, if you exceed either the AA or the LTA there is a tax charge from HMRC (annually for AA and when you take benefits for LTA). So, it is a good idea to check your USS annual member statement, this shows the LTA for your USS Retirement Income Builder benefits and your USS Investment Builder savings (if any), to see exactly where you stand, remembering that:

  • The standard AA set by HMRC is £40,000 for the tax year ending 5 April 2018, which is the same as last year.
  • You only receive tax relief on contributions up to the value of your UK earnings (or £3,600 p.a if your earnings are less than your contributions).
  • If your taxable income is over £110,000 per annum, your annual allowance will be lower due to new HMRC rules, known as ‘tapering’. More information is available in our AA factsheet.
  • If you have already drawn any benefits from a defined contribution arrangement (not just the USS Investment Builder), your AA may be lower.
  • The LTA is currently £1,030,000 but is higher for members with HMRC protected rights.
HMRC allow you to save up to
Your UK earnings are: You receive full tax relief on pension contributions up to:
<£3,600 pa £3,600
£20,000 pa £20,000
£30,000 pa £30,000
£40,000 pa £40,000
>£110,000 pa The AA Taper could apply. See the factsheet for details.

For more information, our factsheets on the AA and LTA, provide useful reference material if you are interested in understanding these better.

You can carry allowances forward

If you exceed the AA you can reduce your tax charges by carrying forward allowances from previous tax years. A good starting point is to check your USS annual member statement to work out if you have unused allowances for the previous three periods, which can be added to the allowance for the current year.

Tax charges are worth weighing-up

Our website contains helpful tax guides and factsheets which, together with our annual allowance modeller, are the ideal starting point for members interested in assessing their personal tax position.

AA you use this year

You can manage your position against HMRC allowances

The tools and resources highlighted in this article – along with the information in your USS annual member statement – will help you understand your annual and lifetime allowances. Importantly, with USS there are many ways for you to manage your position with HMRC in relation to these, including:

  • Scheme Pays – allows you to pay an AA tax charge from your pension;
  • Voluntary Salary Cap – allows you to build up reduced pension benefits;
  • Enhanced Opt-out – allows you to retain other scheme benefits (such as death and incapacity cover) without adding to your LTA with USS benefits;
  • Infographic – our pensions tax infographic provides a handy overview of the topics covered in this article.

Important note: This publication is for general guidance only. It is not a legal document and does not explain all situations or eventualities. USS is governed by a trust deed and rules and if there is any difference between this publication and the trust deed and rules the latter shall prevail. Members are advised to check with their employer contact for the latest information regarding the scheme, and any changes that may have occurred to its rules and benefits. Any references to the trustee or USSL in this document means Universities Superannuation Scheme Limited, the trustee company of Universities Superannuation Scheme and any references to the scheme or USS means Universities Superannuation Scheme. As you review this information, please keep in mind that past performance is not necessarily a guide to future performance. The value of investments may go down as well as up and the return on your investments is not guaranteed.