>

Please feel free to get in touch

Point of View

Be aware – pension deadlines approaching

The end of the tax year is fast approaching, giving rise to a few important pension-specific deadlines that are worth noting. As with all tax issues, these are complex and will depend on your individual circumstances, so if you are looking to maximise your pension savings, it’s vital that you speak to a financial adviser as soon as possible.


Remember - when it comes to an annual allowance, if you don’t use it within a certain timeframe, you lose it.
 

Carry forward of pension allowances

Each year you have a pension savings allowance, which, for money purchase schemes (where the value of your pension fund is based on the amount of contributions and subsequent growth), is the maximum amount you, or someone on your behalf, can contribute to a pension while benefiting from tax relief. If you have not used your full allowance in the last three years you should take note, as these allowances can potentially be carried forward.

The easiest way of knowing how much money has gone into your pension is to obtain a Pension Savings Statement from your pension provider(s).  This will outline how much has been paid in or accrued either by you or on your behalf, and will also give you information about your available annual allowance.
 

There are additional restrictions:

  1. You must have been a member of a registered pension scheme in the tax years for which you want to use carry forward.
  2. You must use your entire annual allowance for this tax year first before carrying forward any annual allowance from a previous tax year.
  3. If you make the contribution yourself, you must have earned at least the amount of your gross pension contributions in this tax year to receive tax relief.
 

What are the tax allowances for previous tax years?

 
TAX YEAR ANNUAL ALLOWANCE
2013/14 £50,000
2014/15 £40,000
2015/16 Between £10,000 and £80,000
2016/17 Between £10,000 and £40,000

 
As you can see, annual allowances have changed of late which makes contribution decisions even more complicated.  The key change is the money purchase annual allowance which is designed to prevent individuals ‘recycling’ their pension income for a double dip at the tax relief.
 

Money Purchase Annual Allowance

If you are over 55 years old you are entitled to start withdrawing your pension savings. If (after taking the tax free lump sum you are entitled to) you have started to take taxable income from your pension, you will be subject to the Money Purchase Annual Allowance (MPAA). The MPAA is the amount you can now contribute to your pension given you have been withdrawing from it. The MPAA is under consultation, and could be reduced from £10,000 to £4,000 from April 2017. If you have accessed your pension savings, but want to continue contributing, make sure you maximise those contributions this tax year.   If you are affected by the MPAA, you will not be able to carry forward any unused annual allowance for any of your money purchase schemes.
 
Please note - if you have a Defined Benefit (also known as a final salary) pension scheme, you may still have some remaining annual allowance in addition to the MPAA. Carry forward can be used with this remaining (alternative) annual allowance.
 

Individual Protection 2014 (IP14)

The 2016–17 tax year saw a drop in the pension lifetime allowance (LTA) from £1.25 million to £1 million, leaving many unwittingly in breach of the new limits. There are various protection options for those with total pension savings in excess of £1 million, or those who think they will have pension savings worth over £1 million by the time they take their benefits.
 
In particular, there is one important protection deadline looming. If you had total pension savings worth more than £1.25 million at 5 April 2014, you can apply for IP14, which means you can have pension savings in excess of the new limits. However, all applications must be made before 5 April 2017.
 

Class 3A Contributions

If you reached State Pension Age before 6 April 2016 you can make Class 3A National Insurance Contributions – but only until 5th April 2017. These contributions can provide additional state pension of up to £25 per week, which is inflation linked and has a spouse’s pension.
 
Before making any Class 3A contributions, if you have any gaps in your National Insurance record, which mean that you’re not entitled to the full amount of state pension, you can pay Class 3 contributions to fill in the gaps and increase your state pension.  This type of contribution can be better value and will continue to be available after 6 April 2017.
 
Both Class 3 and Class 3A contributions could be of particular benefit to the self-employed and those with gaps in their NI contribution history.  Contact GOV.UK to find out more.

 

Summary

The decision on how much to contribute to a pension is not an easy one but with the tax rules on pensions being subject to constant change, using available allowances before they are lost should always be a worthwhile consideration.
 
To find out more about maximising your pension savings, get in touch with your financial adviser.
This article is to highlight potential tax savings that may be available to you, and is for your information only. As with all tax issues this is a complex area of financial planning, and will depend on your individual circumstances. Before taking any action, please speak to your financial adviser at the earliest opportunity.

Please remember any views or facts expressed above are based on information received from a variety of sources which we believe to be reliable, but are not guaranteed as to accuracy or completeness. Any expressions of opinion are subject to change without notice. None of the information should be regarded as advice. Past performance is not a reliable indicator of future results. Investing involves risk and the value of investments and the income from them may fall as well as rise and is not guaranteed. Investors may not get back the original amount invested. Any tax treatment is dependent upon individual client circumstances and may be subject to change.

SWP (Registered in England and Wales, No. 3879955), SLP (Registered in England and Wales, No. 980142), SFS (Registered in England and Wales, No. 2354894). Registered Office: St. Bartholomew's House, Lewins Mead, Bristol BS1 2NH.

SPI (Registered in England and Wales, No. 2041819). Registered Office: 16 South Park, Sevenoaks, Kent TN13 1AN.

Investing involves risk and the value of investments and the income from them may fall as well as rise and are not guaranteed. Investors may not get back the original amount invested.