How can I value my pension saving?
Working out whether you are affected by the Annual Allowance is quite complex, but this should help you work out your general position.
In general terms, subject to special rules regarding ‘flexible access’ benefits, the increase in the value of your pension savings in the LGPS in a year is calculated by working out the value of your benefits immediately before the start of the input period (1 April), increasing them by inflation, and comparing them with the value of your benefits at the end of the input period (31 March).
In a defined benefit scheme like the LGPS, the value of your benefits is calculated by multiplying the amount of your pension by 16 and adding any lump sum you are automatically entitled to from the pension scheme. If the difference between:
the value of your benefits immediately before the start of the input period (the opening value) and
the value of your benefits at the end of the input period (the closing value) plus any contributions you have paid into the scheme’s Additional Voluntary Contribution (AVC) arrangement in the year or that you and your employer have paid into the scheme’s Shared Cost AVC arrangement in the year
is more than £40,000, you may be liable to a tax charge.
The method of valuing benefits in other schemes may be different to the method used in the LGPS.
If you have elected to transfer pension rights from another scheme into the LGPS, the value of the benefits relating to the transfer does not count towards your pension savings in the LGPS in the year in which the transfer payment is received.
If your pension benefits in the LGPS are reduced following a Pension Sharing Order or a qualifying agreement in Scotland (issued as a result of a divorce or dissolution of a civil partnership) then, for the purposes of calculating the value of your pension savings in the LGPS, the reduction in your benefits is ignored in the year that the Pension Sharing Order or qualifying agreement is applied to your benefits.
If you retire on grounds of permanent ill health and an independent registered medical practitioner certifies that you are suffering from ill-health which makes it unlikely that you will be able (otherwise than to an insignificant extent) to undertake gainful work (in any capacity) before reaching your State Pension Age there is no annual allowance tax charge on the ill health retirement benefits.
It is important to note that the assessment covers any pension benefits you may have where you have been an active member during the tax year, not just benefits in the LGPS.