Changes to the Annual Allowance & Lifetime Allowance Craig Martin Pension Manager

Annual allowance: Definition Annual Allowance is the amount your pensions savings can increase in any one year before you become liable to a tax charge If you exceed in one year, can offset against unused allowances from previous three years Any excess is charged at normal rate of tax £50,000 limit, reducing to £40,000 from 1 April 2014 DateAnnual Allowance 2006/07215k 2007/08225k 2008/09235k 2009/10245k 2010/11255k 2011/1250k 2012/1350k 2013/1450k 2014/1540k 17

Pension/lump sum at 31 March 2013 Based on Final Pensionable Salary and Pensionable Service at that date Inflation (CPI) increase Pension/lump sum at 31 March 2014 Based on new Final Pensionable Salary and Pensionable Service at that date StartEnd Pension ‘growth’ x 16 + lump sum ‘growth’ + AVCs = Annual “growth” “Pension Input Period” (PIP) Annual Allowance How does it work? 3

Example calculation of Annual Allowance… Assumption: Pensionable pay is £60k for 2012/13 and £63k in 2013/14 15 years scheme membership and CPI is 3.1% Opening balance 2012/13£ Pre 08 pension p.a. Post 08 pension p.a. 10/80 x £60k 5/60 x £60k 7,500 5,000 Pre 08 pension p.a. Post 08 pension p.a. 10/80 x £63k 6/60 x £63k 7,875 6,300 Closing balance 2013/14£ Add lump sum10 x 3/80 x £60k 22,500 Total annual pension12,500 Multiply annual pension by 16200, ,500 Increase by inflationX Opening value229, The increase in the member’s benefits for 2013/14 is £251,425 - £229, = £22, As this is less than £50k annual allowance, no tax charge due Total annual pension14,175 Add lump sum10 x 3/80 x £63k 23,625 Multiply annual pension by 16226,800 Add AVCs paid in year1,000 Closing value251,425 19

Example calculation of carry forward Assumes increase in pension of £60k for 2013/14, exceeding the £50k limit by £10k YearIncrease in pension value Annual Allowance Unused reliefCarry forward 2010/11£50,000 £0 2011/12£40,000£50,000£10, /13£22,027.50£50,000£27,972.50£37, /14£60,000.00£50,000£0£27, Member exceeded Annual Allowance in 2013/14 by £10k The member can now use the £37, unused relief to offset the £10,000 Leaves excess amount of £27, for 2014/15 onwards 20

What happens if I exceed the annual allowance? If annual allowance charge is <£2,000 you will have to pay charge directly to HMRC Taxed at normal rate of tax, e.g. 40% If the annual allowance charge is >£2,000 can elect for the amount to paid by the Pension Fund (if the whole charge relates to EAPF) Pension Fund will actuarially reduce the value of your LGPS benefits accordingly 21

Considerations for you Pension Fund will inform you if you exceed the annual allowance in a year Changes to LGPS and Annual Allowance threshold: Accrual rate of the LGPS increasing to 1/49 th Annual allowance threshold reducing to £40k Impact depends on individual circumstances including: pay growth and length of service and AVCs Potential options? 22

Lifetime Allowance: Definition Lifetime Allowance is the total value of all your LGPS and any other pension benefits that you may have accrued, and any excess over and above the threshold is taxed DateLifetime Allowance 2006/071.5m 2007/081.6m 2008/091.65m 2009/101.75m 2010/111.8m 2011/121.8m 2012/131.5m 2013/141.5m 2014/151.25m 23

Lifetime allowance: How does it work? Assessed when pension benefits come into payment 20 x Annual Pension; plus Any Lump Sum payable; plus Value of AVC Fund (if applicable) Compare with current Lifetime Allowance Anything above the LTA limits will be taxed at special rates 24

Example calculation of LTA Assumes pension of £50,000 and a lump sum of £112,500 at retirement (Factor of 20 x pension) + lump sum (20 x £50,000) + £112,500 = £1,112,500 £1,112,500 / £1,250,000 x 100 = 90% of LTA Pension benefits are less than both current and new LTA threshold No lifetime allowance tax due upon retirement 25

New LTA protections: Fixed protection and Individual protection Background and existing LTA protections Fixed protection 2014 Have to apply before 5 April 2014 Protected LTA of £1.5 million regardless of current level of benefits Not permitted if you have primary protection No further benefits can accrue from April 2014 (only CPI increase) Individual protection 2014 You can apply if the value of your benefits are over £1.25 million on 5 April 2014 You do not have primary protection You can continue to accrue benefits and protect benefits up to £1.5 million Legislation will not be in place until August 2014 but backdated to April 2014 Individuals will have until 5 April 2017 to apply 26

What should I do? ProtectionDeadline for registration Notes Fixed Protection5 April 2014Protects benefits up to £1.5m but no further accrual allowed Individual Protection5 April 2017Only apply if benefits are over £1.25m on 5 April 2014 and you do not have Primary Protection You can register for both forms of protections if you qualify What should I do? Pension Fund will contact you if you qualify for FP14 or IP14 to discuss your options The Pension Fund can provide further information relating to your EAPF benefits but will not be able to give you individual advice HMRC has published a Q&A entitled Pension Restriction on tax relief and you can access this from

Any questions?