Pensions tax changes and USS
09 Mar 2011
Annual Allowance * Pension Input Period (PIP) * Lifetime Allowance
The government has proposed changes to the amount of tax relief an employee can claim in respect of pension contributions.
The Annual Allowance (AA), in a defined benefit scheme such as USS, measures the growth in the value of benefits over a 12 month period, plus any AVCs paid into a money purchase arrangement. If the amount of the AA is exceeded, an employee may have to pay additional income tax.
The AA has been set at relatively high levels in the past, however legislation is being laid that will reduce the AA from its current level of £255,000 to £50,000, effective 1 April 2011.
Each pension scheme must nominate the period, referred to as the Pension Input Period (PIP), over which the increase in benefit is assessed for AA purposes. The PIP for USS runs from each 1 April to 31March in the following year.
Formal notification from USS about the PIP is given in the following document on the USS website:
The government has also proposed a reduction to the capital value of benefits that may be received at retirement, the Lifetime Allowance, without incurring additional tax. The LTA will reduce from £1.8m to £1.5m on 1 April 2012.
Further information about the LTA and AA is contained in factsheet 16 (two documents) on the USS website:
- Additional information for high earners (PDF, 94.74 KB)
- Limits to tax relief and tax-free benefits (PDF, 98.35 KB)
The USS trustee board is currently considering how the pensions tax changes will affect USS members and what amendments should be made to the scheme rules to help members mitigate the effect of the tax changes. All members will be notified once the board’s discussions are complete.
Pensions Office
March 2011