Please feel free to get in touch

Please see our Website Privacy Policy for information

Technical View

Technical View

Special Feature Part 2
End of year tax planning 2015/16: Maximising pension savings – make them while you can

Welcome to our second special edition of Technical View, which forms part of an additional series with a special focus on the April 2016 changes.

In our first April 2016 Special Feature we looked at circumstances in which protection from the lifetime allowance charge may be worth considering. In this edition, as the end of the tax year draws ever closer, we look at pensions financial planning, which is on the minds of many. This year is by no means an exception. Indeed, in advance of any Budget announcements next month, together with the pension changes from 6 April 2016, those who can, may want to maximise their pension savings… while they can.

After all, pensions continue to be a tax efficient savings wrapper. It’s not just a case of looking at end of tax year planning but also forward tax planning.

Comment - We know the Chancellor will make an announcement about the future of pensions tax relief on Budget Day, 16 March 2016. But for now, we don’t know any of the detail. The common opinion is that any radical changes will not be introduced for another 12 months (so that systems, including HMRC’s own systems, can adapt to any changes). In the meantime, we cannot be sure whether or not any anti-forestalling measures will be introduced. So, if feasible, it may be prudent to maximise pension savings not just before the end of the tax year, but before the Budget next month. 

Opportunity knocks!

For individuals:

  • Who want to apply for protection and may wish to increase the value of their total pension fund. You could do this by making more pension savings before 6 April 2016, so as to protect a higher amount. 
  • Who can utilise available annual allowance this tax year, albeit this is more complex. Not only are the waters muddied by the forthcoming April 2016 changes (e.g. tapered annual allowance for high income individuals) but also by the changes introduced immediately following the Summer Budget 2015. This change, effective from 8 July 2015, created two mini tax years within the 2015/16 tax year. In fact some individuals may have up to three pension input periods (PIPS) ending in the 2015/16 tax year. Fortunately this complexity is short lived and, on a positive note, creates more scope and opportunities to make pension savings. Potentially, some can have more than one bite of the cherry! See our August 2015 Technical View
  • Who are able to carry forward unused annual allowance. But, before doing so it needs to be remembered that the 2015/16 annual allowance has to be used up before utilising carry forward from previous tax years. The maximum carry forward of unused annual allowances from the three previous years is £140,000 (£50k for tax years 2012/13 and 2013/14, with £40k for 2014/15). And remember, with the alignment of PIPS to the tax year some may be able to carry forward from an earlier PIP than anticipated.  
  • Who are additional or higher rate taxpayers and may want to maximise pension savings. Act now as relief at the highest rates may not last forever, especially in view of the possible Budget announcement which may restrict tax relief for high earners. 
  • With income above £150,000: you are likely to face a cut in the amount of tax efficient pension savings they can have from 6 April 2016. Whilst tax relief on pension contributions may be available for these high income individuals over £150,000, their pension savings allowance will be restricted as a result of the tapered annual allowance from 6 April 2016. In broad terms this means that the standard £40,000 annual allowance will be reduced by £1 for every £2 of income individuals have over £150,000 in a tax year until the allowance reaches £10,000 where income amounts to £210,000. The definition of income is wide; it’s not the same as taxable income, nonetheless it does include employer pension provision. 
  • Who can sacrifice bonus for an employer pension contribution. This can boost pension savings and create a ‘win-win’ situation for both employee and employer with NI savings. Indeed, the NI savings themselves could increase pension savings even further. Importantly, to be successful the sacrifice needs to be properly documented. 
  • Who are age 55 or over and may want to boost funds before crystallising benefits. Where this happens before 6 April 2016, the crystallised benefits will be tested against the current lifetime allowance (LTA) of £1.25 million and thereby use up a smaller percentage of their lifetime allowance. Also bear in mind that the money purchase annual allowance (MPAA) may be triggered in certain circumstances once an individual crystallises pension benefits, in which case their pension savings to a money purchase arrangement will be limited to £10,000p.a. and any unused annual allowances are lost.  So if an individual wants to maximise their pension savings and pay more than £10,000p.a. to a money purchase arrangement post crystallisation, they should avoid triggering the MPAA.  HMRC guidance at PTM056530 sets out the events that do not trigger the MPAA, for example, taking PCLS only from a flexi- access drawdown arrangement, or designating further funds to an existing capped drawdown fund.     

Of course there are the usual suspects in terms of end of year tax planning to consider as well, such as the ability to recover the personal allowance by making pension contributions, if taxable income is above £100,000. In a similar vein, pension contributions can reinstate child benefit rather than being lost to a child benefit tax charge. This kicks in where the highest earner has income of £50,000 with the child benefits falling away completely where the highest earner’s income is in excess of £60,000. For more information see our February 2016 Technical View.
Lots of head scratching but there are some really good opportunities to grasp this tax year. The important message is that those who can do so may want to maximise pension savings while they still can.

In our next April 2016 Special Feature edition we will build on this and try to alleviate any furrowed brows by providing some example case studies relating to these opportunities.
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: 23.02.16

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 February 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.