Beta This part of GOV.UK is being rebuilt – find out what beta means

HMRC internal manual

Pensions Tax Manual

Annual allowance: pension input periods: first pension input period started before 6 April 2011

Glossary PTM000001
   

 

Changing pension input period end dates for pension input periods where the first pension input period for an arrangement began before 6 April 2011
Aligning existing pension input periods with (for example) the tax year under the previous annual allowance provisions
Retrospective nominations
Consequences for schemes and individuals of retrospective nominations
Aligning existing pension input periods with the tax year under the current annual allowance provisions

Paragraph 27(2) Schedule 17 Finance Act 2011

Different rules applied for setting pension input period start and end dates for an arrangement where the first pension input period for the arrangement started before 6 April 2011. Those rules continued to apply to a pension input period that started in 2010-11 and ended in 2011-12.

For guidance on the annual allowance rules before 6 April 2011 see the Registered Pension Schemes Manual on the National Archives website (external users please refer to: http://webarchive.nationalarchives.gov.uk/*/http://hmrc.gov.uk/manuals/rpsmmanual/RPSM00100000.htm).

However, the rules changed for ‘subsequent’ pension input periods for an arrangement where the first pension input period for the arrangements started before 6 April 2011. That is the pension input periods for an arrangement that follow the pension input period for the arrangement that started in 2010-11 and ended in 2011-12.

The rule change applies to the end date that can be nominated for such a subsequent pension input period.

Changing pension input period end dates for pension input periods where the first pension input period for an arrangement began before 6 April 2011

Section 238 Finance Act 2004

With a reduction to the annual allowance from one tax year to the next, some scheme administrators may want to align existing pension input periods for an arrangement with the tax year. This might be done to make it easier for the members of the scheme to work out their pension savings for each tax year going forward.

This can be done by applying the current rules for nominating a different end date for a subsequent pension input period. A ‘subsequent pension input period’ for this purpose means a pension input period that started in 2011-12 having followed a pension input period that started in 2010-11 and ended in 2011-12, or a pension input period that starts in a later tax year having followed on from a pension input period that started in 2010-11 and ended in 2011-12.

Alternatively it could have been done under the previous annual allowance provisions applying before 19 July 2011 by making a retrospective nomination.

Top of page

Aligning existing pension input periods with (for example) the tax year under the previous annual allowance provisions

Under the annual allowance provisions that applied before 6 April 2011, the first pension input period for an arrangement ended on the anniversary of the commencement date of that pension input period, unless the scheme administrator (or the individual in the case of an other money purchase arrangement) nominated otherwise. The next pension input period would start the day after the first pension period ended and would end on the anniversary of the end date of the first pension input period and so on for each subsequent pension input period.

Therefore, following the introduction of the annual allowance charge on 6 April 2006, a pension input period that commenced immediately on that date, for example, would have ended on 6 April 2007. The next pension input period would have started on 7 April 2007 and ended on 6 April 2008. The next would have started on 7 April 2008 and ended on 6 April 2009 and so on for subsequent pension input periods.

Scheme administrators may not have realised that existing pension input periods for an arrangement did not align with the tax year unless a nomination was made to change the end date of the first pension input period for that arrangement.

Top of page

Retrospective nominations

Under the previous annual allowance legislation it was possible to make a retrospective nomination to unwind the pension input periods for an arrangement back to the first pension input period for that arrangement.

Such a retrospective nomination was possible only if no previous nomination to change an end date had ever been made in relation to any of the pension input periods for that arrangement.

By retrospectively nominating a different end date for the first pension input period so that pension input period ended on 5 April of the same tax year in which the first pension input period started, it was possible to align all existing and future pension input periods for that arrangement with the tax year. Once such a nomination was made to change the end date for the first pension input period it was not possible to make a second nomination for the same pension input period.

Retrospective nominations had to be made before 19 July 2011.

Under the current annual allowance provisions, a retrospective nomination is not possible as a nomination made on or after 19 July 2011 cannot be for a date that is earlier than the date on which the nomination is made.

Top of page

Consequences for schemes and individuals of retrospective nominations

Retrospectively changing the end date of the first pension input period under the previous annual allowance provisions may have an impact on an individual’s tax liability, as it may result in the individual’s contributions or benefit accrual falling within a different tax year for the purposes of the annual allowance charge. If the scheme has always worked on the mistaken basis that the pension input period for arrangements under the scheme ended on the 5 April this is likely to have little if any effect and is only likely to affect members who have made large contributions close to the end or beginning of the income tax year. However, individuals will be liable to any annual allowance charge that arises as a result of the change in the pension input period and will be able to claim any repayment of any overpayment that may arise as a result of the change. A repayment claim can be made up to four years after the end of the tax year in which the overpayment arises.

Top of page

Aligning existing pension input periods with the tax year under the current annual allowance provisions

Under the current annual allowance provisions it is possible to change the end date of the current pension input period by extending the input period to end on 5 April. This will have the effect of aligning future pension input periods with the tax year. However, it is not possible to align any previous pension input periods for that arrangement with the tax year. A ’current pension input period’ for this purpose means a pension input period that starts in 2011-12 having followed a pension input period that started in 2010-11 and ended in 2011-12.

This is still tested against just a single annual allowance.

Example

The previous pension input period (which was not the first input period) started on 2 September 2010.

The previous pension input period will end on 1 September 2011 if there is no nomination for an earlier end date in 2011-12. No nomination is made.

The current pension input period will commence on 2 September 2011.

Without a nomination the current pension input period will end on 1 September 2012.

A nomination is made to change the end date of the current pension input period to 5 April 2013. (The nomination cannot be made any later than 5 April 2013.)

The current pension input period now runs from 2 September 2011 to 5 April 2013. Though the period is more than 12 months the pension input amount for that period is tested against just one annual allowance (in this case £50,000 as the pension input period ends in 2012-13).

The following pension input period will commence on 6 April 2013.

The following pension input period will end on 5 April 2014, unless there is a nomination to change the end date to another date in the 2013-14 tax year.