Pension scheme tax allowances

uss

Changes to lifetime and annual allowances have been confirmed by HM Revenue & Customs.

Lifetime Allowance

This allowance limits the tax preferential pension benefits you can build up in total in the UK.

The lifetime allowance is reducing from £1.25m to £1m from 6 April 2016.

A lifetime allowance of £1m is equivalent to a USS pension of circa £43,500 per annum with a standard lump sum of £130,500. If you are drawing benefits before 6 April 2016 the lifetime allowance is £1.25m.

If you think you will breach this allowance at retirement you should refer to the further information available here. The lower lifetime allowance will also apply if you have already drawn benefits under the USS flexible retirement policy and have yet to decide when to draw your remaining benefit.

Annual Allowance

Members are restricted in the amount of tax preferential pension benefits that can be built up in a tax year by the annual allowance (AA). The current annual allowance is £40,000 a year but could be less for some members on higher earnings.

Should your benefits built up over the year exceed this allowance, then you will be re-assessed for income tax (the excess will be added to your taxable pay for the year) unless you have unused excess from the three prior years.

There are two changes to this allowance as follows:-

  • Transitional arrangements are in place for the 2015/16 year to align scheme practice and tax years.
  • From April 2016, members with taxable income in excess of £110,000 will need to consider the new tapering rules, which could mean your annual allowance is less, possibly as low as £10,000 a year.

If you think you will breach this allowance at retirement you should refer to the further information available here.

Related information