Annual Allowance examples

 

SummaryExample oneExample two

Below is a general way to calculate your deemed contributions in the LGPS, to compare to the annual allowance.  To begin, you will need to know what your lump sum and yearly pension was at the start and end of the input period. Refer to benefits as at 31 March on your annual benefit statements.

The annual allowance you have used in the LGPS will be shown on your next Annual Benefit Statement.

Input period in LGPS is 1 April to 31 March

Input period for AVCs is 6 April to 5 April

 

Value of your LGPS benefits at the start of the period

Yearly Pensionx 16    X CPI Multiplier     = Value of pension
Automatic Lump Sumx CPI Multiplier= Lump sum
Total= Opening value of LGPS benefits   

 

Value of your LGPS benefits at the end of the period

Yearly pension x 16                           = Value of pension
Automatic Lump Sum= Lump sum
Total= Closing value of LGPS benefits

 

Work out your deemed contributions

Closing value of LGPS benefits – Opening value of LGPS benefits = Increase in pension
Total AVC payments for the year from 6 April to 5 April= AVC contributions Total

Total

= Deemed contributions  

 

Are deemed contributions over or under the annual allowance?

Annual allowance -        Deemed contributions= Over or under annual allowance

Annual Allowance examples

Julie is a member of the LGPS

  • Julie’s pay increased from £19,000 at the start of the pension input period to £22,000 at the end of it. This increased her lump sum and yearly pension.
  • She also contributed £3,000 to AVCs
  • Example Consumer Price Index (CPI) of 2.5% is converted to a multiplier of 1.025. The actual CPI changes each year
  • Based on the 2011/12 annual allowance of £50,000

In respect of Julie’s LGPS pension:

1 Julie’s LGPS benefits at start of the period

Yearly pension  £4,988.00x 16    x 1.025 CPI = £ 81,803.20  value of pension
£ 12,113.00x 1.025 CPI=£ 12,415.83lump sum
Opening value of LGPS benefits=£ 94,219.03

 

2 Julie’s closing value of LGPS benefits

Yearly pension £ 6,142x 16=£ 98,272.00value of pension
£ 14,025.00lump sum
Closing value of LGPS benefits=£ 112,297.00

 

3 Julie’s deemed contributions

£ 112,297.00 - £ 94,219.03 = £ 18,077.97 increase in pension
£ 3,000.00 AVC contributions
Deemed contributions =£ 21,077.97

 

4 Has Julie used up more or less than the annual allowance?

Annual allowance - Deemed contributions = Over or under annual allowance
£ 50,000.00 - £ 21,077.97 = £ 28,922.03

Julie is under the Annual allowance by £28,922.03. It can be carried forward for 3 tax years

Annual Allowance examples

Dan is a member of the LGPS

  • Dan’s pay increased from £26,000 at the start of the pension input period to £38,000 at the end of it. This increased his lump sum and yearly pension.
  • Example Consumer Price Index (CPI) of 2.5% is converted to a multiplier of 1.025. The actual CPI changes each year
  • Based on the 2011/12 annual allowance of £50,000

In respect of Dan’s LGPS pension:

1 Opening value of Dan’s LGPS benefits

Yearly pension  £ 5,850x 16    x 1.025 CPI = £ 95,940.00 value of pension
Lump sum £ 13,650x 1.025 CPI=£ 13,991.25lump sum
Opening value of LGPS benefits=£ 109,931.25  

 

2 Closing value of Dan’s LGPS benefits

Yearly pension £9,183x 16=£ 146,928.00value of pension
£ 19,950.00lump sum
Closing value of LGPS benefits=£ 166,878.00

 

3 Dan’s deemed contributions

£ 166,878.00 - £ 109,931.25 = £ 56,946.75 increase in pension
Deemed contributions =£ 56,946.75

 

4 Has Dan used up more or less than the annual allowance?

Annual allowance - Deemed contributions = Over or under annual allowance
£ 50,000.00 - £ 56,946.75 = (-)£ 6,946.75

Dan has used £ 6,946.75 more than the annual allowance. He can offset this against carried forward allowances from the last three years, but will otherwise have to pay tax on it.