It is a question often asked by clients. “When do I need to undertake my pension planning by?”
For various reasons, many clients wish to make important decisions regarding their pension planning as late as possible. This often revolves around knowing what income or company profits one has generated during the period in question and consequently what Income Tax or Corporation Tax liability will likely ensue.
Therefore, we thought we would take the opportunity of outlining the principles here for purpose of clarity.
Firstly, regardless of the source of the contribution, it is worthwhile reiterating that it has to be receipted by the pension provider. It is not enough to simply have written the cheque or sent the money electronically. The cheque has to be received at the office or the money received into the pension provider’s account. A payment sent by BACS a day or two before the appropriate deadline is, therefore, unlikely to be received in time.
Where a client is making a contribution personally, the tax year is the defining period. Therefore, a contribution that is to be effective within the 2011/2012 tax year should be made on or before the 5th April 2012.
Where a business man is making a contribution via their own company or an employee is benefiting from a pension premium from their employer, for the company / employer to receive Corporation Tax relief within a trading year, the contribution must be received by the pension provider on or before their company year end.
Where clients are contributing well within the annual allowance of £50,000 per annum, the above is relatively straight forward. In a future article, we will take a look at an additional layer of complexity arising where clients are making substantial contributions, potentially in excess of the Annual Allowance.
We do of course encourage clients to avoid last minute planning wherever possible as unexpected logistical issues may prove problematic. Indeed, aside from this, there are various advantages to doing so. These include contributing regularly out of ongoing cashflow to make contributions perceivably more ‘affordable’, reducing investment risk and volatility through pound / cost averaging and avoiding pension planning being postponed or forgotten altogether as a result of a fallow period in the run up.