Are you over the limit?
From 6 April 2014, the lifetime allowance (LTA), the maximum pension savings can qualify for tax relief, reduced from £1.5m to £1.25m. The annual allowance (AA), the maximum annual contribution to a pension scheme that qualifies for tax relief, reduced as well from £50,000 to £40,000. Anyone over these limits may face a tax charge of up to 55%.
Are you affected?
Many dental personnel could be affected. Anyone in the NHS pension scheme retiring on a pension of more than £54,350 could exceed the lifetime allowance.
A senior dental hygienist or therapist earning more than £45,000 and receiving a significant promotion could breach the annual allowance if they have more than 20 years service.
Many people may have both defined contribution (DC) and defined benefit (DB) schemes. Defined contribution it is the amount of money paid in or the size of the pot that counts towards the annual allowance/lifetime allowance.
However, when valuing defined benefit schemes such as the NHS pension scheme, the HM Revenue and Customs (HMRC) assigns a notional value to their pension (16 x the increase in pension for annual allowance purposes and 20 x the annual pension for lifetime allowance purposes, plus any tax-free lump sum payable on retirement).
There is some relief against the new lifetime allowance. For those who have a pension value that exceeds £1.25m on 5 April 2014, ‘individual protection’ will be available. Individual protection gives a protected lifetime allowance equal to the value of the pension on 5 April 2014, limited to £1.5m.
These issues are complex and we would advise contacting your employer or pension scheme if you think you are affected. ‘MyCSP’ offers a service to employers wishing to provide support to affected members.
Virginia Burke, from ‘MyCSP’, has more than 20 years’ pensions experience from a variety of roles in both the public and private sector. This includes a trade union, a police force and a life assurance company.