Your quick guide to pension tax

If you’re close to your Annual Allowance, you can ask us to apply a cap to your pensionable salary for tax purposes.

You can cap your salary to any level at or above the salary threshold (£58,589.70 for 2019/20).

The Voluntary Salary Cap takes effect from 1 April each year – but the deadline for applications is 3 March.

With a Voluntary Salary Cap, you’ll only pay contributions up to the level of the salary you set, unless you choose to pay 2.5% above the cap to keep life and incapacity cover based on your full salary. Use the Contributions & Tax Calculator to see the impact of different Voluntary Salary Cap levels.

You can get the Voluntary Salary Cap form from the pensions contact at your workplace, and you’ll need to speak to your pension or payroll team because they’ll need to make a change to their payroll for you.

Please note: Since the salary threshold is the subject of an employer consultation, which will complete after the Voluntary Salary Cap deadline (3 March), if you apply for a Voluntary Salary Cap based on the current salary threshold, it will be set to the level of the new salary threshold from 1 April automatically.

Enhanced Opt Out lets you keep life and ill health cover without building up any further USS benefits.

It’s most useful if you’re close to or have exceeded your Lifetime Allowance and you want to manage the tax liability of the USS benefits you’ve built up.

With Enhanced Opt Out, you pay 2.5% of your salary into the scheme instead of 9.6%, and your employer pays in 2% instead of 21.1%.

If you choose Enhanced Opt Out you:

• must keep it for at least a year
• can only choose it once – if you cancel, we can never reinstate it
• can’t take flexible retirement
• should check whether using Enhanced Opt Out would breach the conditions of any Lifetime Allowance protection you have in place (events such as incapacity retirement whilst an Enhanced Opt Out member may cause you to lose your fixed protection).

In most cases, if your pension savings for the tax year exceeded your Annual Allowance limit and if you didn’t have enough unused allowance to carry forward from the previous three tax years, you’d need to pay an Annual Allowance charge.

Scheme Pays allows you to pay this charge from your pension – we pay it on your behalf out of your benefits, so you don’t have to find the cash to cover it there and then.

Use the Scheme Pays modeller to see what works best for you.