Annual Allowance
AA
The AA is the maximum amount of an individual’s annual pension savings that can benefit from tax relief. It is a capitalised value that is tested against the limit. If the annual pension savings exceed the AA limit, then income tax will be applied to the excess at the individual’s marginal rate of tax.
In 2011, the Government reduced the AA limit from £255k to £50k and it is expected that this limit will reduce further to £40k with effect from April 2014.
The tables below provide illustrations of which point a USS member may exceed the AA limit of £40k. The AA figure is affected by your length of service, your pensionable salary, annual increases in your pensionable salary, Consumer Price Index (‘CPI’), and any additional voluntary contributions that you make (AVCs). The figures in red indicate the point at which you may exceed the AA limit of £40k in the year.
It is important to note that benefits are valued for AA purposes in line with the USS pensionable salary definition. During periods of high price inflation but low salary inflation, your pensionable salary may be greater than your actual salary.
Please note that this ready reckoner is only to be used as a guide as it will not take into account any benefits transferred in from a previous employer or any AVCs that you may be paying.
USS ready reckoner
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USS have provided a modeller facility on their website where members can obtain estimates of their AA accrual. Please click on the following link, and input your USS member number (which can be found on your USS annual benefit statement) and your national insurance number: https://www.ussbenefitmodeller.co.uk/.
If you are liable to pay a AA tax charge, you may choose to pay it yourself or, in certain circumstances, you may request USS to pay part or all of it on your behalf. In return, USS will make an appropriate deduction to your benefits. This is called ‘scheme pays’ and you can use the USS online calculator to help determine the value of this deduction - http://www.uss.co.uk/SchemeGuide/FinalSalaryBenefitssection/modellersandcalculators/schemepayscalc/Pages/default.aspx.
In 2012, USS introduced three options for members to help ‘manage’ their tax liability in relation to the reductions to the AA and LTA limits. Please click on the link below to obtain further information in relation to these options:http://www.uss.co.uk/Factsheet%20List/Addendum%20to%20Limits%20to%20tax%20relief%20and%20tax-free%20benefits.pdf
Pensionable Salary Definition for USS Final Salary section members
This is your highest average salary worked out to a formula designed to give you the best possible calculation – “smoothing out” any adverse ups and downs in your salary over the years, and making adjustments for price inflation.
This is how it works: USS determine your salary for each period of 12 months that you have been a USS member, over a maximum time of 13 years previous to the date on which your pensionable salary is to be calculated, and revalue each salary, except the last 12 months, using the Retail Prices Index measure of inflation.
Your pensionable salary is whatever comes out best - either the highest revalued annual salary during the last three years or your highest revalued salary averaged across any three consecutive “best years” over the last 13 years.
