OMERS Pension Guide

Overview

➢ Tapered Annual Allowance (TAA) is a complex piece of legislation (effective from April 2016) that only affects higher earners. ➢ In most circumstances, individuals whose total taxable income (plus the value of company pension contributions) is less than £260,000 per year will not be affected. ➢ Individuals whose total income is more than £260,000 are impacted and should be fully aware of the changes. ➢ The Annual Allowance (AA) is the maximum pension contribution that can be paid in a year (tax charges apply to any excess). ➢ The standard AA is £60,000* per tax year. This includes both personal and employer pension contributions. ➢ For higher earners, the AA is reduced by £1 for every £2 of income over £260,000 in a tax year. ➢ AA reduces to an absolute minimum of £10,000 per year. ➢ If income is £360,000 or more, AA will be reduced by £50,000 to the £10,000 minimum (£100,000 ‘excess’ income divided by two).  It may be possible to pay more than this using the 3-year carry forward facility. Individuals potentially impacted should calculate their available carry forward allowance. ➢ Adjusted Income consists of an individual’s income from all sources before tax (salary, bonus, benefits in kind, profits from self-employment, rental income, investment income). o PLUS ➢ The value of any employer pension contributions. If the Adjusted Income figure exceeds £260,000 in a tax year, the tapering of AA will apply. If the Adjusted Income exceeds £360,000 the AA will be just £10,000. Test 1 – Adjusted Income

Test 2 – Threshold Income

In a small number of situations, an individual that fails the Adjusted Income test may not see their AA reduced:

➢ Threshold Income uses the same starting point (income from all sources before tax). ➢ Personal pension contributions can be deducted. ➢ Employer pension contributions are not added.

If the Threshold Income is £200,000 or less for the tax year, the AA will not be reduced.

How to Value Employer Pension Contributions

➢ Money Purchase Pension arrangements are valued by the monetary amount that an employer contributes to an individual’s pension plan over the course of a tax year. ➢ OMERS Workplace Pension Plan with Aviva is an example of a Money Purchase Pension arrangement.

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