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Pension Input Periods – beware the Annual Allowance (AA) reduction

The pension Annual Allowance (AA) reduction announced in the Autumn Statement has given rise to some important considerations for people making contributions this calendar year.  Strange as it seems, the year in which you receive tax relief and the year in which you are tested against the AA are not always the same, which can occasionally cause issues.

Anyone contributing to pensions would no doubt be under the impression that a contribution paid to their personal pension on 2 May 2013 would count against the 2013/14 AA of £50,000.  However for many individuals, this is not the case.  This is because contributions are tested against the AA for the year in which the pension scheme’s year ends, which is defined by its ‘Pension Input Period’.

Historically, Pension Input Periods have not always ended on 5 April (i.e. the end of the tax year).  A number of pension providers chose to run their Pension Input Periods from the date of the first contribution post A-day (6th April 2006), which means a plan which was receiving pension contributions on 1st of each month could automatically have a Pension Input Period running from 1 May to 30 April each year.  In circumstance described above, the pension contribution on 2 May 2013 (although tax-relievable against income in 2013/14) would count against the reduced £40,000 Annual Allowance in 2014/15.

This can be resolved with careful planning, but those not receiving professional advice currently may wish to consider this if they, or their employer, intend to make large pension contributions.

 

 

Date: 25th January, 2013
Author: Tony Slocombe

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