ANNUAL ALLOWANCE GUIDE Local Government Pensions …

1 Version December 2017 1 ANNUAL ALLOWANCE GUIDE Local Government Pensions Committee (LGPC) Index Page Introduction 5 Disclaimer 6 Copyright 7 The ANNUAL ALLOWANCE 7 When is an ANNUAL ALLOWANCE test not required for benefits in the Scheme? 9 The test - where an ANNUAL ALLOWANCE test is required for benefits in the Scheme 14 The Opening Value of main Scheme benefits 15 The Closing Value of main Scheme benefits 19 The Opening and Closing Value of AVCs / SCAVCs 27 How certain types of membership and additional pension count when calculating the Opening and Closing Values - Added years contracts - Old style part-time buy-back contracts - Preston part-time buy-back elections - Elections to pay contributions for child related leave, absence with permission or absence due to a trade dispute where the absence relates to a period prior to 1 April 2014 (or 1 April 2015 in Scotland) - Augmented membership or additional pension granted by the employer (England and Wales) under regulations 12 or 13 of the LGPS (Benefits, Membership and Contributions)

2 Regulations 2007 - Augmented membership or additional pension granted by the employer (Scotland) under regulations 12 or 13 of the LGPS (Benefits, Membership and Contributions) (Scotland) Regulations 2008 - Additional Regular Contributions (ARCs) - Additional Pension Contributions (APCs) - Additional pension granted in respect of a revoked ASBC election (England and Wales) 29 29 32 33 35 36 39 42 44 45 Version December 2017 2 Adjustments to the Closing Value - Transfers out, including: - transfers out to any non-LGPS scheme, and - transfers out to a cross-border LGPS fund, and - within-border Inter / Intra-Fund Adjustments where the member has pre 1 April 2014 membership, or pre 1 April 2015 membership in Scotland, but the Inter / Intra-Fund CETV in respect of that membership purchases an amount of earned pension in the member s active CARE account but excluding: - all other within-border Inter / Intra-Fund Adjustments - Transfers in, including.

3 - transfers in from any non-Club scheme - transfers in from a Club scheme (including from a cross-border LGPS Fund) that occurred before 28 January 2015 - transfers in from a Club scheme (including from a cross-border LGPS Fund) that occurred on or after 28 January 2015 but where the transfer is not treated as a Club transfer ( because there has been a break of more than 5 years between leaving the sending scheme and joining the LGPS or because the member has missed the deadline in paragraph of the Club memorandum for electing to proceed with a Club transfer), and - within-border Inter / Intra-Fund Adjustments where the member has pre 1 April 2014 membership, or pre 1 April 2015 membership in Scotland, but the Inter / Intra-Fund CETV in respect of that membership purchases an amount of earned pension in the member s active CARE account but excluding.

4 - transfers in under the terms of the Public Sector Transfer Club, and any cross-border LGPS transfers in which are transferred under the terms of the Public Sector Transfer Club, where the transfer occurred on or after 28 January 2015 - all other within-border Inter / Intra-Fund Adjustments - Public Sector Club transfers in which occur on or after 28 January 2015 ( transfers in under the terms of the Public Sector Transfer Club, and any cross-border LGPS transfers in which are transferred under the terms of the Public Sector Transfer Club, where the transfer occurred on or after 28 January 2015) - Conversion of in-house AVC pot to Scheme membership in England or Wales - Conversion of in-house AVC pot to Scheme membership in Scotland - Pension Debits - Pension Credits - Adjustment of benefits on account of the Scheme paying the ANNUAL ALLOWANCE tax charge on behalf of the member 46 46 49 53 55 56 58 60 60 Version December 2017 3 Treatment of Inter/ Intra-Fund Adjustments other than.

5 - cross border LGPS transfers, and - within-border Inter / Intra-Fund Adjustments where the member has pre 1 April 2014 membership, or pre 1 April 2015 membership in Scotland, and the Inter/ Intra-Fund CETV in respect of that membership purchases an amount of earned pension in the member s active CARE account 69 Treatment of concurrent employments 81 Treatment of returning officers, acting returning officers, counting officers and regional counting officers 81 Treatment of Compensatory Added Years (CAY) 82 What pensionable pay should be used in calculating the Opening and Closing value of pre 1 April 2014 benefits (pre 1 April 2015 benefits in Scotland)? - How accurate should the final pay calculation be for the purposes of calculating the Opening and Closing value of pre 1 April 2014 benefits (pre 1 April 2015 benefits in Scotland)? - Best of last 3 years pay when calculating the Opening and Closing value of pre 1 April 2014 benefits (pre 1 April 2015 benefits in Scotland) - Average of 3 consecutive years pay in the last 13 years, etc when calculating the Opening and Closing value of pre 1 April 2014 benefits (pre 1 April 2015 benefits in Scotland) - Fees variable time employees - when calculating the Opening and Closing value of pre 1 April 2014 benefits (pre 1 April 2015 benefits in Scotland) Pensions Increase due under the Pensions (Increase) Act 1971 How accurate should the calculation of the CARE benefit be for the purposes of the ANNUAL ALLOWANCE calculation for active members?

6 Application of Certificate of Protection in Scotland to calculation of CARE benefits Retrospective pay increases 82 84 86 87 90 91 93 96 96 Assessing whether there is a tax charge 101 Money purchase ANNUAL ALLOWANCE (MPAA) if member has flexibly accessed a money purchase arrangement 103 ANNUAL ALLOWANCE calculation 2015/16 109 Tapered ANNUAL ALLOWANCE for 2016/17 onwards 116 Version December 2017 4 Carry Forward 121 Worked examples 142 Anti-avoidance 142 Employing authority duties provision of information to the administering authority 143 Administering Authority duties provision of information to other schemes where member transfers out and administering authority has reason to believe the member has flexibly accessed benefits 143 Administering Authority duties provision of information to the Scheme member 144 What happens if the employing authority does not provide information on time or the administering does not provide the pension savings statement on time?

7 158 What happens if the employing authority supplies incorrect information or incorrect information has been given on the pension savings statement? 159 Administering authority duty to notify HMRC that a pension saving statement has been issued 159 Retention of records 162 Paying the tax charge the mandatory Scheme pays option 163 Scheme member duties - Member duty to inform administering authority if member has flexibly accessed money purchase benefits - What an individual needs to do if their pension savings exceed the ANNUAL ALLOWANCE - How to complete the tax return if an individual will not know their pension input details until after the Self Assessment filing date - Scheme member wishes to utilise the mandatory Scheme pays option 169 169 170 171 171 Administering authority duties if the Scheme member elects for the mandatory Scheme pays option 175 Scheme member amends the mandatory Scheme pays election - Where the member has reduced the amount they require the

8 Scheme to pay - Paying the additional amount of tax if the member has increased the amount they ask the Scheme to pay 178 179 179 Voluntary Scheme pays 180 Version December 2017 5 Summary of timescales 192 Annex 1 Glossary 193 Annex 2 Table of timescales 207 Annex 3 Worked examples 210 Annex 4 Aligning PIPs - Extract from the minutes of the Technical Group meeting held on 11th December 2015 415 Annex 5 - Transfer Club and ANNUAL ALLOWANCE 434 Introduction Ref. 1. The information in this GUIDE sets out the LGPC Secretariat s understanding of the ANNUAL ALLOWANCE provisions that operate from 2011/12. It is based on: the provisions of the Finance Act 2004 (as amended by the Finance Act 2005, the Finance Act 2009, the Finance Act 2010, section 66 of, and Schedule 17 to, the Finance Act 2011, the Finance Act 2013, the Finance Act 2014, the Taxation and Pensions Act 2014, the Finance (No.))

9 2) Act 2015, the Finance Act 2016 and the Finance ( ) Act 2017, related Statutory Instruments - the Registered Pension schemes (Standard Lifetime and ANNUAL Allowances) Order 2007 [SI 2007/494] - the Registered Pension schemes (Standard Lifetime and ANNUAL Allowances) Order 2010 [SI 2010/922] - the Registered Pension schemes (Uprating Percentages for Defined Benefits Arrangements and Enhanced Protection Limits) Regulations 2006 [SI 2006/130] - although section 235(3)(c) of the Finance Act 2004, to which this SI relates, has been deleted by the Finance Act 2011 - the Registered Pension schemes (Modification of Scheme Rules) Regulations 2011 [SI 2011/1791] - the Registered Pension schemes (Notice of Joint Liability for the ANNUAL ALLOWANCE Charge) Regulations 2011 [SI 2011/1793] - the Registered Pension schemes (Reduction in Pension Rates, Accounting and Assessment) (Amendment) Regulations 2013 [SI 2013/1111] - the Finance Act 2004 (Registered Pension schemes and ANNUAL ALLOWANCE Charge) (Amendment) Order 2015 [SI 2015/80] [Para 27 of Sch 17 to the Finance Act 2011] Version December 2017 6 - the Scottish Rate of Income Tax (Consequential Amendments) Order 2015 [SI 2015/1810] - The Registered Pension schemes (Provision of Information) Regulations 2006 [SI 2010/567] as amended by the Registered Pension schemes (Provision of Information) (Amendment) (No 2) Regulations 2011 [SI 2011/1797], the Registered Pension schemes (Provision of Information) (Amendment) Regulations 2013 [SI 2013/1742], Registered Pension schemes (Provision of Information) (Amendment)

10 Regulations 2016 [SI 2016/308] and paragraphs 87 to 90 of Schedule 1 to the Taxation of Pensions Act 2014. information in the ANNUAL ALLOWANCE section of the Technical Pages in HMRC s Pensions Tax Manual at correspondence between the LGPC Secretariat and HMRC, and face-to-face discussions with HMRC 2. It should be noted that, within this GUIDE : cross references shown in square brackets are to the relevant section(s) of the Finance Act 2004, as amended, or to another specified Act, or to the appropriate regulation in subordinate legislation ( in a Statutory Instrument), and expressions / terms shown in plumb coloured font throughout this GUIDE are defined in the Glossary at Annex 1. Disclaimer 3. The information contained in this GUIDE has been prepared by the LGPC Secretariat, a part of the Local Government Association (LGA).