Annual allowance

New Firefighters' Pension Scheme 2006

The annual allowance limits how much your pensions savings can increase in a year before you have to pay tax on them. It is set by HM Revenue and Customs.

The year is called the pension input period, it runs from 1 April to 31 March and roughly corresponds with the tax year. Increases in the value of pension savings are called deemed contributions.

If your total deemed contributions in a year exceed the annual allowance you must pay a tax charge on the excess.

Current annual allowances are:

  • 2012 to 2013 – £50,000
  • 2013 to 2014 – £50,000
  • 2014 to 2015 – £40,000
  • 2015 to 2016 – £40,000

You are more likely to exceed the annual allowance if:

  • you're on a high salary
  • a pay rise increases your pension savings
  • you retire due to ill health with an enhanced pension

Enhanced Protection does not protect you against having to pay an annual allowance charge.

But the annual allowance will not apply:

  • in the year of death
  • possibly due to some ill-health retirements, the government has yet to decide

Your annual benefit statement will show your deemed contributions for your fire pension. For information about annual allowance used before April 2012, please contact us.

This table shows how the increase in your benefits over the year (deemed contributions) are worked out:

Type of scheme Deemed contributions
Fire pensions and other defined benefit schemes

The amount by which your annual pension has increased in a year is multiplied by 16, then added to the increase in any automatic retirement lump sum.

Pension benefits from the start of the year are re-valued to reflect inflation. For allowances from before April 2011 use an allowance of £50,000 and multiply increases in pension by 16.

Defined contribution schemes The actual amount of contributions made

To see if you have exceeded the annual allowance, add together your deemed contributions for all pension schemes to which you have contributed in the year to see if the total exceeds the annual allowance.

  • you can include unused allowances from the previous three years with the year you are checking
  • only increases in benefits from pensions to which you have contributed during the year count towards your annual allowance

If you exceed the annual allowance after carrying forward unused annual allowance from the previous three years, you will have to pay income tax on the excess.

You should report it on your self assessment tax return and pay the charge by the deadline. HMRC can tell you how to do this. You may elect for your pension scheme to pay some or all of the charge and in return your pension benefits would be reduced.