The annual allowance is the amount by which the value of your pension savings can go up in any year before you have to pay an annual allowance charge.
The annual allowances are shown in the table below. The tax rules set out how the value of the increase in your pension savings is to be worked out. Any increase in pension must be multiplied by 10 (From 6 April 2011, we expect this factor to increase to 16).
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A contributor's GMPF pension and lump sum at 6 April 2008 amount to £50,000 and £150,000 respectively, to give a capital value of £650,000 [(£50,000 x 10) + £150,000]. This person has 35 years membership and, following a promotion, he receives a £40,000 pay award. On 6 April 2009 he has 36 years membership and so his benefits have increased to a pension of £70071 and a lump sum of £202500, to give a capital value of £903,210 (£70071 x 10 + £202500).
Over the year the capital value of his benefits has therefore increased by £253,210 (903,210 - £650,000) which exceeds the annual allowance for 2008/9 by £18,210 (£253,210 - £235,000). The member is therefore required to pay an annual allowance charge to the HMRC of 40% of the excess.
You must decide whether you have exceeded the annual allowance. If you have - and you must take into account all pension benefits in any HMRC registered pension arrangements, including additional voluntary contributions (AVCs) - you must tell HM Revenue and Customs. However if you were a member before 6 April 2006 you may have opted before 6 April 2009, to the HMRC, for either primary or enhanced protection regarding allowance charges. These protections are complicated and part of personal taxation. The Fund does not therefore provide advice about them but further information is available at:
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