If you have no scope to carry forward your contributions from the 3 previous tax years, you’ll be required to pay a tax charge on the value of your pension savings above the annual allowance. You will normally pay this directly to HM Revenue & Customs through your Self-Assessment return.
However, if the charge is more than £2,000 you can ask your pension scheme to pay the charge directly out of your pension pot.
If you have more than one pension scheme, the maximum you can ask The People’s Pension to pay would be the amount of your pension savings that went above the annual allowance in The People’s Pension only.
If your contributions in a tax year exceed the annual allowance, we must provide you with a pension savings statement by 6 October following the end of that tax year. This gives you information on the contributions you’ve made to the scheme in the relevant tax year and the previous 3 tax years. The pension savings statement helps you assess whether you’re liable to an annual allowance tax charge (after taking into account any carry forward). If you’re liable to the charge, you must inform HM Revenue & Customs.
You can elect for The People’s Pension to pay all or part of the annual allowance charge on your behalf by completing the Scheme Pays election notice – this is available on request. The election must be made by 31 July every year. If you make a Scheme Pays election, then the amount of the annual allowance charge (and any interest due) will be deducted from your personal account. The election is final which means it can’t be cancelled at a later date (although it may be amended by sending in a further notice within HM Revenue & Custom’s time limits).
We’re unable to provide advice on your personal tax circumstances. If you’re unsure about the tax implications, we recommend you seek independent financial advice – you may be charged for this service. If you don’t have one already, you can find an adviser at www.unbiased.co.uk.