The annual allowance is the amount by which a member’s pension savings can grow in a financial year before becoming subject to a tax charge.
Pension growth within the LGPS is calculated in accordance with HMRC legislation, under which a scheme member’s pension benefits are measured. The growth is measured using a calculation of 16 x pension, plus any automatic lump sum and adding any additional voluntary contributions (AVCs) you or your employer has paid. The difference between these values at the start and end of the financial year known as the pension input period (PIP), is then measured against a member’s standard annual allowance.
View the latest annual allowance limit.
Where the growth in pension savings is above the annual allowance this is then subject to a tax charge by HMRC. However, a three year carry forward rule allows a scheme member to carry forward any unused annual allowance from the last three PIPs to offset any tax charge.
Avon Pension Fund must notify all members who exceed the annual allowance, with the benefits they have accrued within the Avon Pension Fund alone, by issuing them with a pension saving statement no later than 6 October following the end of the relevant tax year.
The scheme member is responsible for reporting to HMRC when they exceed the annual allowance on a self-assessment tax return and where the tax charge is less than £2,000 the scheme member pays the tax directly to HMRC. However, where the standard annual allowance charge in a tax year exceeds £2,000, scheme members may elect to meet some or all the tax charge from their future pension benefits. In such cases, the Avon Pension Fund is required to pay this tax charge to HMRC on the scheme member’s behalf and then to reduce their future pension benefits accordingly. This is known as the Mandatory Scheme Pays.
Where a member has a tax charge as a result of breaching the annual allowance, they have a right to Mandatory Scheme Pays from the Avon Pension Fund when all the following criteria are met:
Following receipt of a Mandatory Scheme Pays election a scheme member will have their pension reduced; the reduction would then be applied at retirement. The reduction is calculated in accordance with the guidance issued by the Secretary of State for Communities and Local Government in conjunction with consultation by the Governments Actuary Department (GAD).
Under Mandatory Scheme Pays the scheme member and the Pension Fund are jointly and severally liable for the tax charge.
The annual allowance is tapered for high earners. The limit from 2023/2024 onwards means that a scheme members annual allowance will be tapered when their taxable income plus the growth in their pension benefits exceeds £260,000 in a financial year.
The taper reduces the annual allowance by £1 for every £2 of adjusted income received over £260,000 until a minimum annual allowance of £10,000 is reached.
There is no Mandatory Scheme Pays available for any tax charge relating to excess growth on a scheme member’s tapered annual allowance – this can only be paid by the Pension Fund under Voluntary Scheme Pays.
In addition to the tapered Annual allowance scenario above, there are also some other potential situations in which a member may have incurred a tax charge, but does not have an entitlement to Mandatory Scheme Pays, and as such can ask Avon Pension Fund to pay the tax due on their behalf under Voluntary Scheme Pays. The table below lists some of the more common scenarios and stipulates what Avon Pension Fund’s policy is: -
| Scenario | Avon Pension Fund’s Policy |
|---|---|
| Where a member’s pension savings within the Fund is subject to the tapered annual allowance, and the member’s total Voluntary Scheme Pays tax charge is £2,000 or more. | The Fund will not accept such an election. |
| Where a member’s tax charge in respect of the LGPS is less than £2,000. | The Fund will not accept such an election. |
| Where a member makes a valid Mandatory Scheme Pays election in respect of the LGPS, but has a tax charge relating to another pension arrangement which they are requesting the Fund to meet on their behalf. | The Fund will not accept such an election. |
| Where a member has an annual allowance charge of more than £2,000 because they have exceeded the annual allowance by virtue of savings across multiple pension schemes, without exceeding the annual allowance in any one scheme. | The Fund will not accept such an election. |
| Where a member meets the Mandatory Scheme Pays criteria, but due to an administrative oversight (e.g. failure to provide the required pension savings statement) on the part of the Fund, was unable to make their election within the required timescale. | Such an election will be accepted by the Fund. |
| Where a member meets the Mandatory Scheme Pays criteria, but due to their own oversight (i.e. not an administrative oversight on the part of the Fund) fails to make their election within the required timescale. | The Fund will not accept such an election. |
| Where a member fails to make a ‘mandatory Scheme pays’ election before they have become entitled to all their benefits under the Scheme. | Such elections will be considered by the Fund on an individual case basis. |
A Voluntary Scheme Pays request in any other scenario will be considered on its individual merits.
There is technically no statutory deadline for scheme members to request to use the Voluntary Scheme Pays option. However, subject to the administering authority’s approval, the tax charge payment to HMRC must be made before 31 January in the following tax year to ensure additional interest charges are not incurred by the scheme member.
For example, if the charge relates to the tax year 2025/2026 then payment must be received by HMRC by 31 January 2027. To allow Avon Pension Fund to pay Voluntary Scheme Pays tax charges by 31 January a deadline of the 31 December in the preceding year has been set for applications to be received by.
The scheme member has sole liability for the annual allowance tax charge under the Voluntary Scheme Pays option, so even though the Pension Fund may pay over the amount of tax on the scheme member’s behalf, the scheme member remains solely liable for the amount of tax due until the administering authority has paid it to HMRC.
Following receipt of a Voluntary Scheme Pays election a scheme member will have their pension reduced; the reduction would then be applied at retirement. The reduction is calculated in accordance with the guidance issued by the Secretary of State for Communities and Local Government in conjunction with consultation by the Governments Actuary Department (GAD).
V.1.2 15/07/2026