In a defined contribution scheme, like the KPS-MP, this is simply the value of the contributions paid during the Pension Input Period (PIP). This includes all member and company contributions.

Under a final salary, like the KPS-FS, it is the increase in the value of a your benefits during the PIP. The calculation is complex however here is a brief step by step guide:

Step 1

To calculate the value of your benefits at the start of the PIP you must take the annual pension amount at the beginning of the PIP and increase it by the CPI over the 12 month period to the September before the start of the tax year in which the Annual Allowance is being calculated.

PIA (start of PIP) x Sept CPI x 16 = Benefits Value A

Step 2

To calculate the value of your benefits at the end of the PIP, you must take the annual pension amount at the end of the PIP and multiply by 16.

PIA (end of PIP) x 16 = Benefits Value B

Step 3

To calculate the amount of allowance used, deduct the value of your pension at the start of the tax year from the value of your pension at the end of year from each other.

A – B = Allowance used for PIP.

If the final value is above the Annual Allowance for the PIP, then you may find you have an annual allowance tax charge.

The tapered annual allowance only affects you if:

• your ‘threshold income’ is above £200,000, and
• your ‘adjusted income’ is above £260,000 (this threshold increased to £260,000 from 6 April 2023).

Working out your threshold and adjusted income can be complicated. It might be helpful to get regulated financial or tax advice.

Will you be affected by the tapered annual allowance?
Unfortunately this is not a straight forward question to answer since the amount of tax relief on pension contributions available is linked to your total earnings in the year. This will include variable elements such as bonus payments or share exercises and also include external income from sources outside the Company, such as property rental or dividend income.

In addition you may have carry forward available from unused allowances in the three previous tax years which may allow you to build your Annual Allowance back up.

What should you do next?
There is no immediate action required from you if you conclude that:

• Your Threshold income falls below £200,000
• Your Adjusted income falls below £260,000 or carry forward will offset the impact a tapering relief

However you must regularly review your position against the Annual Allowance should your circumstances change.

Individuals with higher salaries should seek independent financial advice in connection with the calculation of their adjusted income and threshold income, taking account of earnings received from various sources, to identify whether their Annual Allowance is to be tapered.

The KPS has a duty to provide you with a Pension Savings Statement should you exceed the standard Annual Allowance in a tax year.

The Trustees will not automatically send you a Pension Savings Statement if you have exceed your tapered annual allowance.  It is therefore important for you to contact Legal & General if you think you may be affected and you require a Pensions Savings Statement.

If you have unused Annual Allowance from the previous three tax years, you can use the unused amount in addition to the allowance you have for the PIP in question. This is called the carry forward method.

The HM Revenue & Customs has created calculators on their website to calculate the carry forward for you. You can use these calculators to work out whether you have any unused Annual Allowance that you can carry forward to a current tax year provided you were a member of a registered pension scheme, or qualifying overseas pension scheme, at some time during all of the previous 3 tax years.

There is the standard pension savings Annual Allowance calculator, which can be accessed here. Full information regarding all the available calculators and links to further Annual Allowance calculators can be viewed here.

There are other conditions in place for this and to find out more please refer to the further information links below.

Should you exceed your standard Annual Allowance within the Kingfisher Pension Scheme, Legal & General will notify you by writing to you no later than October after the tax year to which it relates.

(Please see separate section on the tapering annual allowance if this applies to you).

If you contribute to other pension arrangements throughout the year, you must also take these into account.

Should you not receive a statement this year but wish to have one, please reach out to Legal & General, who will provide one for you.

Further information regarding the Annual Allowance can be found on the HM Revenue & Customs website.