USS – Maximum contribution to USS Money Purchase AVC
USS rule limits contributions to the USS Money Purchase AVC
HM Revenue and Customs (HMRC) introduced a new tax regime limiting the amount of tax relief available to members of approved pension schemes in 2006. This included an Annual Allowance (AA), limiting benefit accrual initially to a maximum of £225,000 pa, which replaced the previous limit on the amount of contributions that could be paid
As a result of these changes the trustees of USS felt it prudent to set an annual limit on the amount of Money Purchase AVCs (MPAVCs) members could pay in order to avoid the possibility of members exceeding the AA.
This limit, which is defined in the USS rules (Rule 35.15), is the current value of the AA (or annual salary if lower), less the value of the member’s ordinary and Added Years USS contributions, example as follows:-
Annual Allowance £50,000 (or annual salary of lower)
Less standard USS contributions
Less additional contributions to the USS Added Years AVC
So, if the pensionable salary were £85,000 and a member paid 3% to the Added Years AVC facility, then the maximum MPAVCs they can pay will be limited to:-
£50,000 – ((£85,000 X 7.5%) + (£85,000 X 3%)) = £41,075.00 pa or £3,422.00 pm.
If a member receives a salary increase during the year then of course they may increase their MPAVCs in proportion.
When the AA was first introduced, as the AA was so high, it was extremely unlikely that members could have achieved that level of contribution.
However, since April 2011, HMRC reduced the AA to £50,000 pa. The USS rule limiting MPAVCs is therefore now much more likely to affect members. Unfortunately as the limit had not previously been an issue, we did not put in place a procedure to monitor whether this rule was being adhered to. We will of course be monitoring this closely in the future.
Prudential now have arrangements in place to check this limit when speaking to members and we are in the process of changing our communication materials.
Institution administrators are also asked to check the limits when asked by members to make large Money Purchase AVC payments.
Prudential have also provided USS with information about those members that have already exceeded this limit (simply on the basis of the amount paid in already) and those that are likely to go over based on contributions so far. We will be contacting these members to inform them about this limit. In some cases members will have to cease further contributions (but they will not be required to refund any overpayment), for others it may simply mean that they need to reduce their anticipated contributions for the rest of the year.
We will be writing to institutions where members have already exceeded the limit in order to cease further contributions to the USS Money Purchase AVC.
This is of course an annual limit, so from April each year members can re-commence contributions, up to the USS limit.