How is the Annual Allowance calculated?

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The increase in the value of your LGPS benefits in a year is calculated by:
 
  • working out the value of your benefits before the start of the ‘pension input period’
  • increasing that amount by inflation
  • comparing it with the value of your benefits at the end of the ‘pension input period’
  • adding any Additional Voluntary Contributions (AVCs) that you or your employer has paid during the year.
 
The pension input period is the same as the tax year – 6 April to 5 April.
 
The value of your LGPS benefits is:
 
  • your annual pension multiplied by 16 plus
  • any lump sum you are automatically entitled to. You will have an automatic lump sum if you joined the LGPS before 1 April 2008.
 
If the value of your pension benefits at the end of the year less their value before the start of the year is more than the annual allowance, you may have to pay a tax charge.
 
The annual allowance applies to all pension schemes, not just the LGPS. If you pay into more than one pension scheme in a year, you will need to find out the total increase in pension savings across all schemes to find out if you have exceeded the annual allowance.
 
You can use the Annual allowance quick check tool to check if your LGPS pension savings are likely to exceed the annual allowance.