There are HM Revenue & Customs control on all your pension savings – not including any state retirement pension, state pension credit or any spouse’s, civil partner’s, nominated cohabiting partner’s or dependant’s pension you may be entitled to. The controls are referred to as the lifetime allowance and the annual allowance.

The lifetime allowance is the total capital value of all your pension arrangements which you can build up without paying extra tax. If the value of your benefits when you draw them exceeds your lifetime allowance a tax charge will be made against the excess. The lifetime allowance for 2009/2010 is £1.75 million.

The annual allowance is the amount your pension savings can increase by in any one year without paying extra tax. Any increase in the value of your deferred benefits will be taken into account in assessing whether you exceed the annual allowance (other than any increase in value in the year in which they are paid). The annual allowance for 2009/2010 is £245,000 and years run from 1 April to 31 March.

Most LGPS member’s pension savings will be significantly less than the allowances.

There are protections for benefits earned up to 5 April 2006 in respect of those high earners affected by the introduction of the lifetime allowance from 6 April 2006. You can find out more about these from the leaflet Tax Controls and Your LGPS Benefits from the full LGPS Employee Guide.

We will let you know the value of your LGPS benefits when they are paid and ask you about any other pensions you may have in payment, so we can work out whether or not to deduct a recovery tax charge.