Along with the Summer Budget on 8 July 2015 HMRC issued a technical note on the transitional provisions for aligning pension input periods. The reason for the change to pension input periods is to facilitate the introduction of a new tapered annual allowance for individuals earning in excess of £150,000.
In this article we look at the changes to pension input periods and consider the impact of the changes. Information about the new tapered annual allowance can be found in a separate bulletin.
Facts and Analysis
A pension input period (PIP) is the period over which the amount of pension savings (pension input amount) under an arrangement is measured. For the vast majority of new pensions set up on or after 6 April 2011 the PIP will be aligned to the tax year, but for those set up before this date the PIP is unlikely to match a tax year unless it was changed. To further complicate matters an individual may have two or more arrangements, each with a different PIP.
PIPs are all to be aligned with tax years and we will start with a look at the transitional rules announced in the Summer Budget 2015 –
- All PIPs open on 8 July 2015 ended on 8 July 2015
- The next PIP started on 9 July 2015, and will end on 5 April 2016 for these arrangements
- This means that all arrangements in force on 8 July 2015 will have either 2 or 3 PIPs ending in the 2015/16 tax year
- For example if an arrangement had a PIP that would normally have ended on 5 April 2016 it will have 2 PIPs ending in the 2015/16 tax year – 8 July 2015 and 5 April 2016
- and if an arrangement had a PIP that would normally have ended on 1 May 2016 it will have 3 PIPs ending in 2015/16 – 1 May 2015, 8 July 2015 and 5 April 2016
- if a new arrangement is set up on or after 9 July 2015 the first PIP will end on 5 April 2016. This is similar to the current rules except that the end date of the PIP cannot be changed
- Savings into an arrangement with a PIP ending in 2015/16 will be split into two mini tax years
- All savings for PIPs ending on or after 6 April 2015 and on or before 8 July 2015 will have an annual allowance of £80,000 (plus any available carry forward from 2012/13, 2013/14 & 2014/15). The period 6 April 2015 to 8 July 2015 is called the ‘pre-alignment’ tax year.
- Savings from 9 July 2015 to 5 April 2016 will have a nil annual allowance, but up to £40,000 of any unused annual allowance from the period up to 8 July 2015 is added to this (plus any available carry forward from 2012/13, 2013/14 & 2014/15). The period 9 July 2015 to 5 April 2016 is called the ‘post-alignment’ tax year
- If an individual had pension savings at some time in the period 9 July 2015 to 5 April 2016 but was not a member of a registered pension scheme at any time during the period 6 April 2015 to 8 July 2015 that individual will have an annual allowance of £40,000 for the period 9 July 2015 to 5 April 2016
At the end of the transitional period all PIPs will be aligned with tax years and it will not be possible to vary the PIP. All arrangements will therefore have a 12 month PIP running from 6 April to 5 April each year.
Read the full article on Aviva for Advisers Tech Centre. 
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