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HMRC internal manual

Pensions Tax Manual

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HM Revenue & Customs
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Annual allowance: pension input amounts: other money purchase arrangements

Glossary PTM000001
   

 

What is included in the pension input amount
What is not included in the pension input amount
Date contribution paid - personal and group personal pension schemes
Date contribution paid - net pay arrangements
Date of contribution - information held for existing contracts
Examples

Note – for tax year 2015-16 there are transitional rules for calculating pension input amounts.  PTM058000 has more details.

Section 233 Finance Act 2004

The amount of pension savings under an other money purchase arrangement is simply the total of contributions paid into the arrangement during the pension input period. This is the pension input amount for the arrangement.

What is included in the pension input amount

The following is included in the pension input amount for an other money purchase arrangement:

  • any relievable pension contribution paid by the member
  • any relievable pension contribution paid by someone else on behalf of the member
  • any contribution paid in respect of the member by an employer of the member.

A relievable pension contribution should include any basic rate tax relief paid to the scheme by HMRC on the member’s behalf; that is, the gross amount of the contributions.

Also a relievable contribution will include the amount of any part of that contribution paid by, or on behalf of, the member that does not actually get any relief. For example, the amount of the relievable pension contributions exceeds the member’s relevant UK earnings that are chargeable to income tax for the tax year. Such amounts that do not actually get any relief are still included, as those amounts were, nevertheless, paid during the pension input period concerned. There is an exception in the case of certain such amounts that are refunded to the member as a refund of excess contributions lump sum (see the What is not included in the pension input amount section below.

If an employer pays contributions to the scheme that have not been allocated to a specific member, but are later put into the member’s arrangement, these employer contributions should be included in the pension input amount when they are actually allocated to the member’s arrangement.

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What is not included in the pension input amount

The following is not included in the pension input amount:

  • relievable pension contributions that are paid by, or on behalf of, the individual during the pension input period but are subsequently returned to the individual by way of a refund of excess contributions lump sum that is made in a pension input period ending in the tax year 2014-15 or a later tax year
  • contributions paid by the individual, or by someone other than the individual’s employer, after the individual has reached age 75
  • contributions that are life assurance premium contributions that do not qualify for tax relief - see PTM044100
  • investment income or returns; and
  • where the arrangement has been contracted out of the State Second Pension, minimum payments paid by employers (including amounts recovered by the employer from the individual) and rebates and minimum contributions paid by HMRC.

Note - for the exclusion from the pension input amount mentioned in the first bullet point above the refund of excess contributions lump sum could occur during the same pension input period in which the contributions were paid or in a later pension input period. A refund of excess contributions lump sum that is paid in a pension input period ending in the tax year 2013-14, or an earlier tax year, would not have the effect of reducing the pension input amount for the pension input period during which the contributions were paid.

Note - the exclusion from the pension input amount mentioned in the final bullet point above of minimum payments paid by employers (including amounts recovered by the employer from the individual) was removed with effect from 6 April 2013. The exclusion is no longer needed as such minimum payments stopped with effect from 6 April 2012.

However, such minimum payments that were made before 6 April 2012 continue to be excluded from pension input amounts for pension input periods ending in the tax years 2009-10, 2010-11, 2011-12 and 2012-13 for the purposes of carry-forward of unused annual allowance.

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Date contribution paid - personal and group personal pension schemes

It is common for an employer to act as the collector of employee contributions for a group personal pension scheme. Group administration processing can cause some delay between the employer deducting the contribution from the employee’s pay and the date that the pension provider is authorised to take money by direct debit from the employer’s bank account or the money is paid by BACS direct credit. For example, a delay may occur because individual figures need adjustment for part-timers or leavers.

When there is a delay after the deduction from the employee’s pay, the date of receipt by the pension provider is taken as the date of payment of the contribution. This could have a bearing when a contribution is deducted from the employee’s pay close to the end of a pension input period.

More information about the date of payment of a contribution can be found in PTM041000. This information applies to other types of pension schemes as well except for contributions deducted under net pay arrangements.

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Date contribution paid - net pay arrangements

The pension input amount for other money purchase arrangements includes the relievable pension contribution ‘paid during the pension input period’. The date of payment in the case of a contribution made under a net pay arrangement is the date of deduction from the employee’s pay (in the same way as for the member getting relief on relievable contributions ‘paid during the tax year’).

For annual allowance purposes, a scheme administrator may not readily be able to identify the date of deduction from pay from their member records. In these circumstances the scheme administrator may either use the date the money was received by the pension scheme or an estimate of the date the payment was deducted from salary for the purposes of determining:

  • commencement dates for the first pension input period in respect of an arrangement, and
  • details of pension input amounts attributable to pension input periods, which are provided to members either automatically or on request.

Where the scheme administrator issues a statement to a member on this basis, the member may rely on the information for Self Assessment purposes for annual allowance purposes.

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Date of contribution - information held for existing contracts

The date a contribution was paid may not have been of relevance to scheme administrators in the past for annual allowance purposes. For example the Occupational Pension Schemes (Disclosure of Information) Regulations 1996 - SI1996/1655 require the date a contribution is “credited”. In some cases this may be the date the contribution “should” have been paid to the scheme ignoring what actually happened. For example, records for a pension provider might show notional credit dates for an individual whose entry into the scheme was delayed but arrears payments were made.

Also, a variety of practices may have been adopted under some insurance contracts. For example old contracts may have “X days of grace”. So long as the contribution is received within X days of the date due, it is given a notional credit date of the date the contribution was initially due and the date the contribution was initially due is what has appeared in statements sent to members.

In these circumstances the scheme administrator may use the notional credit date as date of the contribution for the purposes of determining:

  • commencement dates for the first pension input period in respect of an arrangement, and
  • details of pension input amounts attributable to pension input periods, which are provided to members either automatically or on request.

Where the scheme administrator issues a statement to a member on this basis, the member may rely on the information for Self Assessment purposes for annual allowance purposes.

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Examples

Example 1: company money purchase scheme
Example 2: making a large contribution on redundancy
 

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Example 1: company money purchase scheme

ABC plc runs a money purchase pension scheme for its employees (i.e. other money purchase arrangements). It promises to contribute twice as much as its employees. Janet and Jeff are employed by ABC plc. Under the scheme rules, they pay in 10 per cent of salary every year into the company pension scheme. The scheme’s pension input period runs from 6 April to 5 April.

Janet and Jeff do not have any other pension arrangements to take into account for annual allowance purposes.

Janet’s salary for the period 6 April 2016 to 5 April 2017 is £50,000. This means that contributions paid to the scheme in the pension input period ending 5 April 2017 are:

Member contributions @ 10 per cent = £5,000
   
Employer contributions @ 20 per cent = £10,000
  = £15,000

 

Janet’s pension savings (total pension input amount) for 2016-17 are £15,000, which is less than the 2016-17 annual allowance of £40,000. She does not have to pay the annual allowance charge.

Jeff’s salary for the period 6 April 2016 to 5 April 2017 is £180,000. This means the contributions paid to the scheme for him in the pension input period ending 5 April 2017 are:

Member contributions @ 10 per cent = £18,000
   
Employer contributions @ 20 per cent = £36,000
  = £54,000

Jeff’s pension savings for 2016-17 are £54,000 and he does not have any unused annual allowance to carry forward. He does have to pay the annual allowance charge.  Note, due to his salary, Jeff is subject to the tapered annual allowance in tax year 2016-17.

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Example 2: making a large contribution on redundancy

Linell is a member of a money purchase pension scheme.  Each year she pays 6 per cent of her salary into the scheme and her employer pays in 9 per cent of her salary.

Linell’s pension input period runs from 6 April to 5 April. From 6 April 2014 Linell’s salary is £75,000 which means that each month she contributes £375 to her scheme and her employer contributes £562.50 (total monthly contribution of £937.50).

In March 2015 Linell is made redundant and receives a £110,000 redundancy payment from her employer.  At that point in the pension input period, £10,312.50 has been contributed to Linell’s scheme.

Linell pays £80,000 of the redundancy payment into her scheme so the total contributions for the pension input period rise to £90,312.50 (£10,312.50 + £80,000) which is more than the 2014-15 annual allowance of £40,000.

However, Linell has unused annual allowance of £116,250 that she can carry forward which is broken down as:

2013-14 - £38,750

2012-13 - £38,750

2011-12 - £38,750

Together with the £40,000 annual allowance for 2014-15, Linell has available annual allowance of £156,250.  As her £90,312.50 pension input amount is less than her available annual allowance Linell does not have an annual allowance charge.

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