On 9 March 2023, the Department for Levelling Up, Housing and Communities (DLUHC) laid the LGPS (Amendment) Regulations 2023 (‘the regulations’). The regulations move the annual revaluation date from 1 April to 6 April. The regulations are effective from 31 March 2023.
Currently in the LGPS, the scheme year runs from 1 April to 31 March. The scheme’s revaluation occurs on 1 April each year, which is the first day of the LGPS scheme year. This means that on 1 April each year, active members’ CARE pensions are revalued to take account of the impact of inflation over the previous scheme year.
No members will be detrimentally impacted by this change and there is no change in the outcome for:
- all members whose benefits in payment would have increased on 1 April
- death grants of deferred and pensioner members who die in the period 1 to 5 April.
The new regulations will remove the impact of high inflation on the annual allowance and reduce the number of members incurring a tax charge. They do so by changing the annual revaluation date from 1 to 6 April 2023, and thereafter on each 6 April, for all members.
The annual allowance calculation is based on the tax year being 6 April to 5 April, and it is the growth in a member’s pension over this period (known as the “Pension Input Amount”, or PIA) which determines if there is a tax liability. A pension may grow in line with inflation (based on CPI in the September before the start of the tax year) without contributing to the “Pension Input Amount”, but growth in the pension above that level is assessed against the annual allowance. Annual allowance is the maximum amount of pension savings an individual can make in any one year before potentially facing tax charges.
From the tax year 2023/24 onwards, the inflationary increase used in the AA calculation and the annual revaluation will both use the same CPI figure. For the tax year 2023/24 this will be 10.1 per cent. The Scheme year is not changing, it remains 1 April to 31 March. The revaluation that applies on 6 April applies on the CARE balance at 31 March in the previous Scheme year.
To clarify as things currently stand, the allowance for inflation in the AA calculation does not match the annual revaluation applied to pension accounts. To date the imbalance has been negligible because inflation has been relatively low and consistent. However, the imbalance for tax year 2022/2023 is 7 per cent. This is the difference between the allowance for inflation in the AA calculation of 3.1 per cent and the annual revaluation of 10.1 per cent.
Without changes to scheme regulations, there would be a significant increase in the number of LGPS members breaching the annual allowance and potentially incurring a tax charge. By moving the annual revaluation to 6 April, the imbalance is removed. Both the AA inflation and the annual revaluation will use the same September CPI, meaning that inflation will be taken out of scope of the annual allowance calculation.
Software updates are expected shortly to the pension administration system to ensure that the Avon Pension Fund will be able to comply with these regulatory changes. All our calculations and the Pension Saving Statements issued in the Autumn will therefore comply with the revised legislation.