The Department for Levelling Up, Housing and Communities (DLUHC) has launched a consultation on plans to change the Local Government Pension Scheme (LGPS) career average revalued earnings (CARE) annual revaluation date.

The proposed change from 1 April to 6 April aims to mitigate the impact of high inflation on annual allowance, after the Consumer Prices Index (CPI) in September 2022, which is used for the LGPS revaluation for the 2022-23 scheme year, reached 10.1 per cent.

The DLUHC noted that this is "markedly higher" than the 3.1 per cent CPI in September 2021, which is used for the HMRC uplift, meaning that members would have "significantly higher" total growth in pension for tax purposes.

The consultation also included analysis from the Government Actuary’s Department (GAD) on the number of LGPS members that may exceed their annual allowance in the 2022/23 tax year as a result of the forthcoming April 2023 revaluation increase of 10.1 per cent.

These estimates were "significantly higher than usual", according to DLUHC, showing that if salary increases were 7 per cent in 2022/23, 26,000 scheme members earning over £50,000 (in 2020) and have larger CARE pots with generally longer service, are at a higher likelihood of exceeding their 2022/23 Annual Allowance.

Furthermore, salary increases of 4 per cent in 2022/23 would see 14,000 scheme members earning over £60,000 (in 2020) and have larger CARE pots with generally longer service, placing them at a higher risk of exceeding their 2022/23 annual allowance limit of £40,000.

However, it clarified that, under the proposed date change, GAD expect the number of members likely to exceed their annual allowance to reduce significantly.

In particular, the DLUHC has proposed changing scheme regulations to move the revaluation date from 1 April to 6 April, meaning that inflation would be reflected in the value of the pension after HMRC assess the value of an LGPS pension for the purposes of annual allowance in tax year 2022/23.

As a result, by taking revaluation out of scope of the annual allowance calculation, DLUHC argued that it will reduce the number of members affected by pensions tax for this year.

Indeed, the GAD estimated that, under the changes, roughly 5,000 members would breach the threshold on a 7 per cent salary increase, and just 1,000 members would breach the threshold on a 4 per cent salary increase.

For tax years from 2023/24 onwards, the LGPS CARE revaluation would be aligned with the inflationary growth allowed for when calculating how much a pension had grown for annual allowance purposes, as it was before 2016/17.

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