Pension, PIP, check my workings?

Pension, PIP, check my workings?

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My question is how much pension contribution can this client make prior to 5 April 2012?

During the current tax year we have made a contribution of £60k.  We wish to determine how much headroom there is for additional payments.

The guidance is saying that if I have exceeded the £50k in the tax year (which I have) then I need to consider the previous three tax years (or face a tax charge).  Fair enough.

But, I need to then consider the amount of the contributions in the pension input period (PIP) which ended in the previous three tax year.  If I follow that through then I would need to ignore the £41,000 which was paid in the PIP ended in 11/12.

The PIP for this scheme is 6 April.

This doesn't seem right!

      GROSS GROSS EXCESS EXCESS
TAX YEAR PIP 6 APRIL   TOTAL ANN. ALL TO C/F TO C/F. CUMM
             
08/09 7/4/07 - 6/4/08   18,000 50,000 32,000  
             
09/10 7/4/08 - 6/4/09   19,000 50,000 31,000 63,000
             
10/11 7/4/09 - 6/4/10   20,000 50,000 30,000 93,000
             
11/12 7/4/10 - 6/4/11   41,000 50,000 9,000 70,000
             
12/13 7/4/11 - 6/4/12   60,000 50,000 -10,000  

Replies (1)

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By Steve Kesby
01st Mar 2012 19:22

You're not ignoring the £41K

I went on a course on this last week!

You get a tax charge if the contributions in the Pensions Input Period ending in the current tax year exceed £50K, unless the excess is covered by the unused notional annual allowances in the previous 3 years (again PIPs ending in the tax year).

So you're not exceeding the annual allowance until 12/13 and the excess can be covered by the unused notional annual allowance from 09/10.

I assume this is the client's only pension arrangement?

Provided there are no other arrangements, and no new arrangements get entered into during 12/13, the maximum contribution (but not on 6/4/11) that can be made before 5/4/12 is £120,000.

EDIT: If the contribution is being paid by the individual (the annual allowance covers both employer and employee contributions, as well as an increase in entitlement under a defined benefit scheme - complex calculation) then relief for the contribution is obtained in 2011/12, but any charge for exceeding the annual allowance is taxable in 2012/13, because that's the tax year the PIP ends in.

Care needs to be taken, as either the investor or the pension administrator can elect to change the PIP and the earliest election prevails (fuzzy on the detail of how the election is made I'm afraid).  You don't want to elect to change, but if you make the maximum contribution and the pension scheme administrator elects to shorten the period, you'll end up with two PIPs ending in the same year (the contributions then get aggregated), with devastating consequences.  It doesn't help planning at all.  I'm not sure if it's possible for the elect to change the PIP to the same date, maybe blocking an election by the administrator, which may be worth investigating.

Can't you pass this over to an IFA and make it their worry, whether the advice is correct or not?

In case you don't know and are interested, the reason there are so many schemes with a PIP ending on 6th April is that the first PIP following 'A' Day (when PIPs came about) was set to 366 days for some obscure reason.  Possibly because the legislation was introduced in 2004 (a leap year), having been drafted earlier, but didn't take effect until 6 April 2006.

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