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HMRC internal manual

Pensions Tax Manual

Annual allowance: pension input periods: annual allowance reduces during a pension input period

Pension input periods that started in 2010-11 but ended in 2011-12

Paragraph 28 Schedule 17 Finance Act 2011 

On 14 October 2010 it was announced that the annual allowance for 2011-12 would be £50,000 instead of £255,000.

It was possible that an individual was already making pension saving in a pension input period that had started in 2010-11 but would end in 2011-12. Because it was previously announced that the annual allowance for 2011-12 was £255,000, some individuals might have already made pension savings of more than £50,000 for that pension input period before the announcement was made that the annual allowance would reduce to £50,000.

To cover this situation there are transitional rules for 2011-12.

For pension input periods ending in 2011-12 the annual allowance charge would not apply to any pension saving (pension input amounts) of more than £50,000, subject to a maximum of £255,000, where that saving:

  • had built up before 14 October 2010, or
  • had built up before and on or after 14 October 2010 provided no more than £50,000 worth had not built up on or after 14 October 2010.

This only applies for pension input periods ending in 2011-12 that started before 14 October 2010. Any pension input period that started on or after 14 October 2010 and ended in 2011-12 had the annual allowance of £50,000 for 2011-12.

Treatment of pension input periods that started before 14 October 2010 and ended in the 2011-12 tax year

The transitional rules work by treating the pension input period that started before 14 October 2010 and ended in 2011-12 (the ‘straddling pension input period’) as if it were two separate pension input periods:

  • one period that started with the date that the straddling pension input period actually began and ended on 13 October 2010, and
  • the other period that began on 14 October 2010 and ended on the date that the straddling pension input periods actually ended in 2011-12.

This is not a permanent separation of the straddling pension input amount. It applies only for working out if someone was liable to the annual allowance charge for 2011-12, and if so how much of their total pension input amount was chargeable. For all other purposes (for example for the information requirements, for the right to access to mandatory scheme pays) what is relevant is the normal whole pension input period and the entire pension input amount for that period, whenever made during that period, is taken into account. That figure will usually be the sum of the pension input amounts for each of the periods described above, in the case of other money purchase arrangements. However, this might not be so for cash balance arrangements and defined benefits arrangements because of the way the pension input amounts for each period are valued.

PTM054200 explains how pension input amounts are valued when the straddling pension input amount is treated as two separate pension input amounts.

Pension input periods that started in 2013-14 but ended in 2014-15

There are no such special rules to cover the reduction of the annual allowance to £40,000 for 2014-15 as the reduced amount was known ahead of pension input periods that started in 2013-14 but would end in 2014-15.