HMRC have set a deadline for members to inform their pension provider that they want their pension scheme to pay the Annual Allowance (AA) charge on their behalf.
Following receipt of an initial election notice within HMRCs deadline, a member can complete a second election if there is a change to the amount of their AA charge. This could occur if they received a provisional statement and their final statement shows the AA charge has either increased or decreased.
Further information about estimating the liability for an AA charge is available from HMRCs website
A Scheme Pays election is where a member who is subject to an annual allowance (AA) charge, elects for the relevant pension scheme to pay the charge on their behalf. The SPPA will only pay the AA charge if the scheme receives a Scheme Pay election notification and the member meets the mandatory requirements prescribed by HM Revenue and Customs (HMRC). Where a Scheme Pays election is made, the member's benefits are reduced in line with factors provided by the scheme actuary.
There are two restrictions that apply to pension savings. These are:
- the amount you can increase your pension value by in any one year - the Annual Allowance (AA) and
- the amount you can have as a total value from all your pension savings in your lifetime - the Lifetime Allowance (LTA).
In the SPPA the AA is worked out by the growth in your benefits in a year. The AA limit covers all your pensions, except your state pension, therefore all other pension savings need to be added together. From 6th April 2014 the Annual Allowance reduced to £40,000 a year.