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Technical View

Technical View

Welcome to this month’s Technical View, where we look at some of the outcomes related to pensions that were announced in the Summer Budget on 8 July 2015. 

Technical View aims to answer queries received by you, as a financial adviser for your use when you meet clients in similar scenarios. We hope that this provides useful, topical and valuable information.

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In the June issue of Technical View, we considered the pledge made by the Conservatives in their Manifesto, regarding tax relief on pension contributions for high earners. This did not come to fruition during the Summer Budget, however, we are still awaiting further information regarding what might happen with regards to tax relief on pension contributions.

The Summer Budget announced that from April 2016, a Tapered Annual Allowance will be introduced for those with adjusted annual incomes over £150,000. The measure will restrict pensions tax relief by introducing a tapered reduction in the amount of the annual allowance for individuals with income (including the value of any pension contributions) of over £150,000 and who have an income (excluding pension contributions) in excess of £110,000. For every £2 of adjusted income over £150,000, the individual’s annual allowance will be reduced by £1, down to a minimum of £10,000p.a. for those individuals with incomes of £210,000 and above. Individuals with income (excluding pension contributions) of £110,000 or lower will not be subject to a Tapered Annual Allowance.

Immediate changes to pension input periods (PIPs) were also announced. The key points relating to PIPs are as follows: 

  • All PIPs ended on 8 July 2015 and a new PIP for everyone began on 9 July 2015 and will end on 5 April 2016. Pension savings for PIPs ending in 2015/16 will be split into two ‘mini’ tax years, depending on whether the PIP ended before 9 July 2015. It is no longer possible for either a scheme member or scheme administrator to nominate a PIP end date.
  • For all PIPs ending on or after 6 April 2015 and on or before 8 July 2015, individuals will have an annual allowance of £80,000, plus available carry forward for tax year 2015/16. 
  • From tax year 2016/17 PIPs will be aligned with tax years and it’s not possible for these to be changed.

Below are two case studies that demonstrate how the changes to PIPs could affect your clients. For both of these case studies each client is below the age of 55 and they have not accessed their benefits flexibly. 

Case Study 1

Client A has relevant UK income for current tax year of £105,000 and started a new pension scheme on 1 July 2015. She made a £40,000 individual contribution in order to utilise her annual allowance for the current year. The PIP under old rules would normally have ended on 5 April 2016.

With the introduction of the new rules, the current PIP ended on 8 July 2015 and a new one started on 9 July 2015. The client now has two PIPs ending in the tax year 15/16 as the second PIP will end on 5 April 2016. The client can now contribute up to an additional £40,000 in the second PIP, and if she has available unused annual allowance she could potentially contribute up to £65,000 based on her relevant UK earnings income for the current tax year (£40,000+£65,000).

Case Study 2

Client B made a personal contribution of £40,000 for 15/16 tax year, with the PIP ending on 01/06/15. A new PIP was started and was due to end on 31/05/16 (16/17 tax year). A contribution of £60,000 was made at the start of the new PIP using carry forward of £20,000 unused allowance from 13/14 & 14/15.

This second PIP ended on 08/07/15 and the client has used all of their £80,000 allowance plus £20,000 carried forward. As these contributions now take place wholly in tax year 15/16, the client can go back to tax year 12/13 for carry forward purposes and may have up to £50,000 additional unused allowance available, subject to having sufficient relevant UK earnings to support this. Alternatively an employer contribution could be paid, subject to the wholly and exclusively test.

Client B also now has all of their 16/17 annual allowance available (£40,000) and can potentially contribute up to this amount in the new tax year, unless their earnings mean they are subject to the tapered annual allowance.

Hopefully this edition has provided some clarity on the changes to pension since the Summer Budget was announced. If you have further queries on the content of this edition or other technical queries then please contact the Technical e-helpdesk at 
technical@sanlam.co.uk.

Date issued: August 2015

This note is to be used by Financial Advisers only. It is not intended for onward transmission to a private customer and should not be relied upon by any other person. Sanlam accepts no liability for any action taken or not taken by an individual or firm as a result of the contents of this material. The tax treatments and information contained in this document is based on current tax law and HMRC practice as at August 2015 and may be subject to change in the future. Whilst we have made every effort to ensure the accuracy of this material, we cannot accept responsibility for any consequence (financial or otherwise) arising from relying on it. This document is for information purposes only and should not be treated as advice and independent taxation advice should be always sought.

Past performance is no guarantee to future performance. The value of investments can fall as well as rise so investors could get back less than they invest.

Sanlam & Sanlam Investments and Pensions are trading names of Sanlam Life & Pensions UK Limited (SLP (Reg.in England 980142)) and Sanlam Financial Services UK Limited (SFS (Reg. in England 2354894)). SLP is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. SFS is authorised and regulated by the Financial Conduct Authority. Registered Office: St. Bartholomew’s House, Lewins Mead, Bristol BS1 2NH.

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.