Our step-by-step guide to calculating the potential tax charges for defined benefit schemes following Treasury changes to the annual allowance.
The government today confirmed it will cut the annual allowance from £255,000 to £50,000 and the lifetime limit from £1.8m to £1.5m. Additionally, it has increased the factor for valuing final salary benefits from 10 to 16. But how do you calculate the tax charge? We use the example of a member who has been a member of a 1/60th final salary scheme for 34 years and gets a 20% pay increase from £60,000 to £72,000. Such a member would see her tax liability calculated as follows. First the opening pension entitlement is calculated as £34,000 (34/60 of £60,000). Next the openin...
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