The government announced on 8 July 2015, that for 2016 to 2017 onwards the annual allowance for tax relieved pension savings will be reduced for those with incomes of over £150,000. Their annual allowance will be reduced by £1 for every £2 of income they have over £150,000, with a maximum reduction of £30,000. In advance of the introduction of this tapered annual allowance, transitional rules were introduced from Budget day to align Pension Input Periods (PIPs) with the tax year by April 2016 and to protect any savings already made before the Budget from retrospective tax charges.
At present, HMRC provides draft guidance on the transitional rules that apply along with a brief overview of the tapered annual allowance rules. The draft legislation is subject to change as it progresses through Parliament. Final updated guidance will be provided after the legislation receives Royal Assent.
A Pension Input Period (PIP) is the period over which the amount of pension saving (pension input amount) under an arrangement is measured. The measurement works on the principle of how much was saved from the start of the pension input period to the end of the pension input period. A pension input period for an arrangement under a registered pension scheme did not, until the Budget changes, have to be exactly the same as the tax year. The pre-Budget position is described below.
A pension input period normally runs for a year, for example from 1 January to 31 December. A pension input period, though, can be less than a year, adding more complexity to a system that is arguably a little obtuse in the first place!
The first pension input period for an arrangement cannot be longer than 12 months but a subsequent pension input period for that arrangement can be longer than 12 months. An individual can have more than one pension input period, but cannot have more than one pension input period relating to the same arrangement ending in the same tax year.
Although the concept of PIP will remain at present but aligned with the tax year from 2016/17, the government will consider if they can, at a later stage, remove the concept of PIP’s altogether. It is now no longer possible to vary PIP’s.Posted In : Pensions, Retirement, UK