Pensions and Tax
Pensions and Tax
You may know that the Government simplified the tax rules for occupational pensions (such as the Principal Civil Service Pension Scheme (Northern Ireland) [PCSPS(NI)] arrangements) and private pensions (such as personal and stakeholder pensions) on 6 April 2006 (also referred to as A-day).
For most people, tax simplification will either have little or no effect. However, in some cases where individuals have high pension benefits, the new rules mean that extra tax will be payable on retirement.
Note: This Section of our website is meant to help you understand the changes and how they might affect you. It does not constitute legal or financial advice and does not override any provision in scheme rules, Finance Act 2004 or any other legislation. You should consider taking independent financial advice before making decisions affecting your personal finances.
Changes to the tax rules
The Lifetime Allowance (LTA)
The LTA is not a limit on the value of your pension. It is a limit on the amount of tax-relieved pension saving that you can have. So, while there is no limit to the size of your pension, you may pay extra tax if it is worth more than the LTA.
The Annual Allowance
The Annual Allowance is the limit on how much tax-free pension saving you can make in any one year. If your pension saving in any year is over the Annual Allowance you may have to pay extra income tax.
What options do I have at A-day?
The Inland Revenue will allow you to register for transitional protection. There are two different types and you will be able to register for either or both.
- Primary Protection is available only if your pension benefits at A-day exceed the LTA. Primary Protection gives you an individual LTA based on the value of your benefits at A-day. This will grow at the same percentage rate as the standard LTA so, if you keep earning pension after A-day you may still end up paying some extra tax.
- Enhanced Protection is available to any scheme member. It protects the benefits you have built up before A-day but – put very simply – doesn’t allow you to benefit from further pensionable service (or make any more contributions to a money purchase arrangement) from A-day.
You have until 5 April 2009 to register for both Protection types.
Note The pension protection period is the first 2 years from retirement in PCSPS(NI) classic – the ‘1972’ scheme – and the first 5 years from retirement in premium and classic plus – the ‘2002’ schemes.
Find out more
For further details on LTA and AA and how to calculate them you can read information booklet:
All booklets and leaflets can be found in the resources section.
If you would like more information please contact Member Administration Section.
You can find their number in the contact us section.
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