Read the latest Taylor Patterson company news, or news relating to bespoke pension arrangements .

Latest News

Changes to pension contributions

Tapered Annual Allowance

On the 8th July 2015 it was announced that for those with earnings over £150,000 per annum would have their annual allowance reduced. This thereby restricts tax relief on pension contributions for those in this bracket, with effect from the 2016/17 tax year.

It is therefore important for high earners, without any form of pension protection to consider their current position before the changes take effect. This is particularly in light of the fact that the changes in pension input periods may offer even more opportunities to be able to contribute.

What do the new rules bring?

Generally, the annual allowance (currently £40,000) will reduce by £1 for every £2 earned over £150,000 per annum.  However, there will still be a minimum annual allowance of £10,000 remaining for those individuals, which comes into effect with earnings above £210,000.

The definition of earnings however isn’t straightforward since the reduction of annual allowance applies to those individuals who have adjusted income over £150,000 but also threshold income over £110,000. This is generally designed to protect those individuals who have come under the high earnings category simply due to pension contributions.

So what in summary are the definitions?

Adjusted Income

    • Individuals total income before tax, subject to the deduction of certain losses, allowable payments etc. before there has been any deduction for personal allowances.
    • Plus personal pension contributions made via the net pay method. Those contributions made via relief at source will already fall into the above category.
  • Plus employer contributions which for defined contribution schemes is the amount of gross contribution and for defined benefit schemes is done via the net increase in benefit calculation less the members own contributions.

Threshold Income

  • This is basically total income before tax (as described above) less all tax relievable pension contributions, employer and employee unless these are from a new salary exchange (sacrifice) agreement put in place after 8th July 2015.

Unless part of a new salary exchange arrangement, pension contributions can generally be used to keep individuals under the £110,000 threshold. It should also be noted that the tapered annual allowance will apply in subsequent years when looking at carry forward.

We would suggest that individuals speak with their usual professional advisers.

Pension Input Periods

A Pension Input Period (PIP) is the period over which you measure the amount of your pension saving (pension input) for your pension arrangement. Previously it has been the tax year in which that PIP ends that has driven when pension contributions are assessable for tax.

How did this work before the rule change?

For example, for an individual who made a pension contribution of £40,000 gross on the 2nd June 2015 with a PIP ending on the 30th May 2016 previously, would have had that pension contribution assessed to tax in the 2016/17 tax year.

Under the new rules which came into force as a result of the 8th July 2015 budget, all PIP periods will now be aligned to the tax year. This should make pension planning much simpler going forward. However, the interim provisions can be quite confusing but have offered some individuals a one-off opportunity to contribute more.

The 2015/16 tax year has been split for annual allowance (AA) purposes into:

  • Pre alignment tax year (6th April 2015 – 8th July 2015)
  • Post alignment tax year ( 9th July 2015 – 5th April 2016)

All PIP’s still open on the 8th July 2015 ended on that day and a new PIP then runs from 9th July 2015 to 6th April 2016 and in line with the tax year thereafter.

  • For the pre alignment tax year (those with PIP’s altered by the budget) the annual allowance is £80,000 with carry forward from tax years 2012/13, 2013/14 and 2014/15.
  • For the post alignment tax year there is a zero AA with the ability to use up £40,000 from any unused allowance from the £80,000, applying to the pre alignment tax year.

So what can clients pay?

No contributions made in the pre alignment tax year

Individuals will have £40,000 of the £80,000 to bring forward from the pre alignment tax year whilst retaining carry forward for 2012/13, 2013/14 and 2014/15.

Contributions made in the pre alignment tax year

Individuals will have up to a £40,000 allowance, this being the difference between £80,000 and what they have contributed subject to the maximum of £40,000. This may give some scope to certain individuals particularly if they haven’t maximised contributions over recent years to contribute a little more.

We would suggest that individuals speak with their usual professional advisers.

For further information, please speak with a member of our technical team on 01772 555073 or via email

Make an enquiry

Personal Details

Organisation Details