Checking for a Tax Charge
If you exceed your Annual Allowance, we'll contact you by 6 October to let you know.
If you think you're affected by the Annual Allowance, you can find more information about pension tax and the Annual Allowance on the Government’s website at Tax on your private pension contributions: Annual allowance - GOV.UK (www.gov.uk).
If you're unsure if you'll be affected, use the Annual Allowance quick check tool on the LGPS member website: Tools and calculators :: LGPS Scotland (scotlgpsmember.org)
If you've been paying into another pensions scheme, you'll also need to check your Pension Input with them and add the totals together. You can then use this information in HMRC’s pension Annual Allowance calculator. The calculator will be able to confirm if you've exceeded your Annual Allowance, and takes any previous years’ carry forward into consideration.
Paying your Tax Charge
If you've exceeded your Annual Allowance, and a tax charge is payable, you must declare this on your Self-Assessment tax return, even if you wish Lothian Pension Fund to pay the tax charge on your behalf.
If the tax charge is less than £2,000 you're responsible for paying this and don't have the option of Lothian Pension Fund paying this on your behalf.
If your tax charge is £2,000 or more then you can apply for a Scheme Pay where Lothian Pension Fund will pay the tax charge on your behalf and a debit will be applied to your annual pension to cover the cost. The deadlines for applying for a scheme pay in any given tax year is listed on the scheme pays form.
Further information is available on the HMRC website.
Scheme Pays Option
A Scheme Pay offset is where you elect for Lothian Pension Fund to pay an Annual Allowance tax charge to HMRC on your behalf and a deduction is applied to your annual pension to cover the cost.
Pension Offset = Annual Allowance Tax Charge ÷ Age- Related Factor
The age-related factors are set by the Government Actuaries Department and are based on your age end of the Pension Input Period that the tax charge relates to e.g. if your tax charge was for the 2022/23 tax year, the factor would be based on your age as at 5 April 2023.
A copy of the latest factors table is available to download below.
The factors are interpolated for those who have a non-integer Normal Pension Age.
The pension debit will increase each year in line with inflation and will be deducted from your pension when it goes into payment. The debit will be reduced/increased if you choose to take payment of your pension early/late. The debit is applied to your pension for life but has no impact on any spouse or children’s pensions payable in the event of your death.
You can apply for a Scheme Pay by completing and returning the Scheme Pays Election Form to us via My Pension Online. We must receive the form before the deadlines stated.
Pension Scheme Tax Reference (PSTR)
Our PSTR number is 00816815RX.
Calculating your Tax Charge
It's your responsibility to calculate any tax charge due in respect of your Annual Allowance. Lothian Pension Fund is unable to calculate any tax charges due for your Annual Allowance and would advise that you seek independent financial advice if you are unsure of what is due.
You can find an independent financial adviser at www.unbiased.co.uk. Please make sure that they understand the LGPS.
A guide to calculating your tax charge can be found on the HMRC website along with a working sheet and further information.