In the second of our end of the tax year planning articles we look at reduction to the Annual Allowance and Pension Input Periods (PIPs).
The Annual Allowance is set to reduce from £50,000 to £40,000 from 6th April 2014.
The £40,000 lower annual allowance will apply to contributions paid (to all plans) in a PIP ending after the 6th April 2014.
There are three ways of making the most of the current £50,000 annual allowance:-
- Use an existing plan whose current PIP ends on or before 5th April 2014;
- Set-up a new plan with the first PIP ending on or before 5th April 2014;
- Change the PIP on an existing plan to finish on or before 5th April 2014.
Total contributions to all plans with PIPs ending before 6th April 2014 can be up to £50,000 with no Annual Allowance charge. So if the current PIP ran from, say 2nd March 2013 to 1st March 2014 contributions would be measured against the £50,000 Annual Allowance because the PIP ends before 6th April 2014. Any contributions to other plans in PIPs ending before that date would have to be included.
Thereafter, the annual amount they can pay to all pension plans without an Annual Allowance charge reduces to £40,000, as the next PIP will end after 6th April 2014.
If the current PIP for an existing plan ends in the 2014/15 tax year, the Annual Allowance of £40,000 will apply. However, the first PIP for a new plan set up before 6th April 2014 could be set to end on the 5th April 2014. As this ends in the 2013/14 tax year, the Annual Allowance that applies will be £50,000. Contributions up to £50,000 could, therefore, be paid without an Annual Allowance charge – but you’d have to include all contributions to existing plans in the PIP ending in 2013/14.
It may be possible to reduce or completely avoid the Annual Allowance charge using carry forward relief.
Carry forward allows unused Annual Allowance (up to a maximum of £50,000 per annum) from PIPs ending in the previous three tax years to be carried forward and added to the Annual Allowance for the current pension input period thus giving a theoretical maximum of £200,000 as a pension contribution before 6th April 2014.