University of Reading cookie policy

We use cookies on to improve your experience, monitor site performance and tailor content to you.

Read our cookie policy to find out how to manage your cookie settings.

USS tax changes

Members of registered UK pension schemes receive tax advantages through their scheme membership. Contributions paid to pension schemes receive tax relief so members pay less tax and on retirement they can take up to 25% of the value of their retirement benefits as a tax free cash sum. There are, however, limits set by Her Majesty's Revenue and Customs (HMRC) on both the amount of retirement benefit you can build up each year (Annual Allowance) and on the total tax advantaged benefit you can build up in your lifetime (Lifetime Allowance).

There are changes to these limits for the 2016/17 tax year. While the Annual Allowance (AA) remains at the 2015/16 level of £40,000, a new Tapered Annual Allowance (TAA) is being introduced for individuals whose "adjusted taxable earnings" exceed £150,000 in the tax year. The Lifetime Allowance (LTA) will decrease from its 2015/16 value of £1.25 million to £1.0 million from 6 April 2016 onwards.

Although these allowances are changing, this should not affect the vast majority of pension scheme members; however it is important that members understand how these allowances work to ensure they do not accidentally incur a tax charge and what options are available to them should they be likely to fall foul of the limits.

USS Ltd has produced some mini factsheets on aspects of the tax changes and while you can easily access them from the USS main website, they can also be found below under "Resources".

Lifetime Allowance (LTA)

The lifetime allowance is the total value of all your pension benefits (not just USS or other Reading schemes) built up throughout your lifetime that is eligible for favourable tax treatment. You can build up pension benefits which in total exceed this value, but the excess over the LTA threshold in place at the time your benefits come into payment will suffer a tax charge. So you do not have to cease pension scheme membership just because you reach or exceed the threshold - you just have to be mindful of the fact that the excess will be taxed.

There are various tax protections in place to allow you to retain a higher LTA but these come at a cost. If you take Fixed Protection, you cannot build up further benefits in any pension scheme and so you may be in a better position overall, if you continue in scheme membership and pay the tax when it arises. However, this is a personal matter and may depend on how much the value of your pension benefits exceeds the threshold.

If you think you may have an issue with the change in LTA, you first need an estimate of your LTA figure to date. With regard to your USS benefits, you can do one or more of the following:

1) Calculate the LTA figure by

  • taking your annual pension amount and multiplying by 20,
  • adding on the tax free cash amount (usually 3 times the pension), and
  • adding in the value of your Prudential fund (if relevant).

2) Use the USS Benefit Modeller to calculate your LTA. You will need:

  • your USS member number. This can be found on any of your USS Service Statements or correspondence from USS. If you cannot track it down, email with the subject header of " USS member number request"; and
  • your National Insurance number.

HMRC Protection

It is possible to take out a form of protection against the drop in LTA. For further information, take a look at page 3 of the USS Limits to tax relief and tax free benefits factsheet (see below). The main points to note are:

1) Individual Protection 2014 (IP 2014) can only be taken out if your LTA value at 5 April 2014 was more than £1.25 million. This fixes your personal LTA at the 5 April 2014 value subject to an overall maximum of £1.5 million:

  • deadline for application is 5 April 2017;
  • you will need to request a formal valuation of your USS benefits at 5 April 2014 - to do this, please email with "LTA value for IP 2014 requested" in the subject header and we will obtain this figure from USS Ltd for you;
  • for more information on IP 2014 see the Guidance document on the Gov.UK website;

2) Individual Protection 2016 (IP 2016) can only be taken out if your LTA value at 5 April 2016 exceeds £1 million. This fixes your personal LTA at the 5 April 2016 value with an upper limit of £1.25 million;

3) Fixed Protection 2016 requires that no more benefits are accrued in any pension scheme after 5 April 2016 and so works best with opting out of USS. See the mini factsheet on Enhanced Opt outs below;

  • the deadline for receipt of the Enhanced Opt Out form by the pensions team in HR is 29 February 2016 (although some small leeway may be possible);
  • if you opt out of USS (using enhanced opt out or otherwise), you cannot take flexible retirement as you are no longer an active member of the scheme.

To apply for IP 2016 or FP 2016 you will need to go on to the HMRC website and apply online. Please note that this facility won't be available until July 2016 (actual date is not known) but there is an interim process for applications where you are retiring between 6 April 2016 and July 2016. For further information on the interim process, please see HMRC Pension Schemes Newsletter No 74.

To apply for IP 2014, first obtain your 5 April 2014 LTA value from USS Ltd (see above) and the administrators of any other schemes where you have benefits then apply online:

Annual Allowance (AA)

The benefit accrual tax free limit will continue to be £40,000 for most scheme members, with any excess over the limit being taxed at your highest marginal rate. However, there is a change being introduced for the 2016/17 tax year whereby anyone with taxable income (from all sources) in excess of £110,000 could be affected by a tapering of this limit.

If you think your taxable income may exceed £110,000, you should read the USS mini factsheet 1 (see Resources below) as this explains if and how you might be affected.

Should a member of USS have an AA charge, they can ask the scheme to settle all or part of the tax bill by using an option called "Scheme Pays" in exchange for a reduction to their USS benefits. This option is only available where the charge is at least £2,000 and has arisen through membership of USS (as opposed through membership of another scheme). Further information can be found on page 8 of the USS factsheet USS Limits to tax relief and tax free benefits.


Please note that the University's pensions team are not able to give you advice regarding these issues. The Annual Allowance charge and the Lifetime Allowance limits are personal tax - albeit arising out of pensions scheme membership - and we are unable to provide you with tax advice; nor are we able to provide you with financial advice. Should you wish to engage an advisor to help you with these issues, you may find one local to you at

Current information

The details given on this page and in the attached documents is correct on 22 February 2016 and does not take into account any prospective taxation changes which may be made in the March 2016 Budget or in the future.