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Question of the Week

This week's question, although will not apply to all, is very topical, since Annual Allowance letters have just gone out!

Can you establish when the annual increase of your pension pot breaches the tax threshold and thus when you will start to receive pension bills from HMRC

First of all you might wish to know who are those most at risk of requiring to pay Annual Allowance (AA) tax. They are:

  • Those promoting, especially from OF3 and above.
  • Those in the rank of 2* and above. 
  • Medical and Dental officers.

And, to answer the question, AA is currently £40k, which is the maximum amount of pension savings that an individual can make each year with the benefit of tax relief.   The way this is applied to AFPS 15 is to divide the allowance amount (£40k) by 16, so if your pension increases from start of tax year by more than £2.5k then you will likely enter AA territory.   Tax is charged on the difference between the value of the pension at start of the tax year and the end.

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