Annual Allowance

What is the Annual Allowance?

You make contributions to USS which are tax-free. These contributions are used to build up your pension savings. The Annual Allowance (AA) is the maximum amount of pension savings you can build up each year before you get a tax charge.

The standard AA is currently £60,000 per tax year. If you build pension savings over this you may incur a tax charge.

If you’re a high earner, you’re likely to have a Tapered Annual Allowance. Or if you’ve started taking any Investment Builder savings (or any other defined contribution savings) you may have a Money Purchase Annual Allowance (MPAA).

The AA applies to pension savings you’ve built up in USS and in any other pension schemes.

Does AA affect you?

It’s likely to affect you if either:

• the value of your pension savings (in and outside of USS) is over £60,000 in the tax year
• you earn over £200,000 in a tax year

How is the AA calculated?

The pension savings you build up during each tax year are measured against the AA using a method set out by HMRC. The measure is different depending on the type of pension savings you’re building up.

• For the Retirement Income Builder (defined benefit), the measure is based on the value of the benefits you’ve earned over the tax year (it’s not based on contributions from you and your employer). The value of your Retirement Income Builder benefits is calculated as 19 times your annual pension accrued in the tax year for AA purposes.
• For the Investment Builder (defined contribution), the measure is based on what you and your employer have paid in to your pot – but doesn’t include any investment returns.
• To find out if you’ll need to pay an Annual Allowance tax charge, you can use our worksheet.

To find out which part of USS you’re in visit how your pension works.

You can use the Contributions & Tax Calculator to estimate how much AA you’ve used up from the benefits you’ve built up with us. Or you can use our worksheet.

We’ll keep you in the know

We’ll tell you how much AA you’ve used in USS during the last tax year in your Annual Member Statement.

If you’ve gone over the standard AA, we’ll also tell you how much AA you’ve used over the previous three years. This is so you can see whether you have any unused AA you can carry forward to cover any tax charges.

Using your unused AA

Just because you’ve gone over the AA, it doesn’t automatically mean you’ll have a tax charge. You may be able to carry forward your unused AA from previous tax years.

Find out more in your unused Annual Allowance.

Paying an AA tax charge

If you’ve exceeded the AA, you may be able to use your pension savings to cover the charge with Scheme Pays.

You can find more information about how to calculate your AA and how to pay a AA tax charge on the HMRC website.

If you have a tax charge, you’ll need to let HMRC know on your self-assessment tax return.

Need a hand?

Sign up for a free Focus on Pension Tax webinar to learn more about pension tax, including USS specific tax mitigation options.

If you want to seek guidance or take financial advice on the options available to you, visit the guidance and financial advice page. You’ll find a range of resources to support your planning and you can also find information on how to access an independent financial adviser.