This article explains how pension input periods operated prior to the 8 July 2015 Budget announcements. Since then pension input periods are aligned with tax years for all registered pension schemes. For more information on the changes see our articles
A pension input period is the period of time used to measure contributions paid/benefits accrued for testing against the annual allowance.
The pension input period doesn't need to be the same as a tax year (i.e. from 6 April to 5 April) and it is possible to change the dates.
Members may have several different pension arrangements over one or more registered pension schemes. It is possible that these may all have different input periods.
The pension input amount for a defined contribution plan is the amount of contributions made during the pension input period.
For defined benefit schemes, the pension input amount is the value of benefits accrued over the pension input period.
Transfers from other plans don't count towards the pension input amount.
Note: Where a member takes benefits as a result of ill-health; becomes entitled to a serious ill-health lump sum or dies, no pension input amount will arise for pension input periods ending in the tax year in which any of these events happen.
Fred has 34 years of benefits accrued in a defined benefit scheme. The scheme provides a pension of 1/60 of pensionable salary for each year of pensionable service.
His pensionable salary is £36,000. In year 35 he gets a promotion and his new salary is £42,000. His pension input period ends in the 2014/15 tax year.
|Step 1||Calculate the opening entitlement. This is 34/60 x £36,000 = £20,400.|
|Step 2||Revalue this amount by the increase in the CPI (the consumer prices index to the September before the start of the tax year in which the pension input period ends). If CPI was 2.5%, the up-rated value would be £20,910 [£20,400 x 1.025].|
|Step 3||Calculate the closing entitlement. This is 35/60 x £42,000 = £24,500.|
|Step 4||Calculate the difference between the revalued opening entitlement and the closing entitlement. This is £3,590 [£24,500 - £20,910].|
|Step 5||Multiply the difference between the revalued opening entitlement and the closing entitlement by 16 to get the value of the increase in the benefits accrued. The pension input amount is therefore £57,440 [£3,590 x 16].|
In this example Fred is over the annual allowance. The excess will suffer an annual allowance charge that will effectively remove all tax relief on the excess.
He will need to tell HM Revenue & Customs (HMRC) that he has exceeded the annual allowance through his tax return.
They matter because the pension input amount is measured against the annual allowance that is in force at the end of the pension input period.
If the pension input amount from all of the member's plans is greater than the annual allowance available an annual allowance charge is due. The annual allowance applies to the pension input amounts for all of a member's plans with pension input periods ending in that tax year.
For example, if the end of the pension input period was 1 December 2013 it would be tested against the 2013/14 limit of £50,000. If the end of the pension input period was 1 December 2014 it would be tested against the 2014/15 limit of £40,000. The tax charge is at the member's marginal rate of tax and will be dealt with through the member's tax return.
It's possible to carry forward unused annual allowance from previous pension input periods to increase the amount of annual allowance available.
For plans set up before 6 April 2011 the pension input period usually runs for 12 months and doesn't have to run with the tax year.
For plans set up after 6 April 2011 the first pension input period has a default end date of the following 5 April. They would then run in line with the tax year.
Pension input periods can be changed, see Can you change a pension input period? section below
For plans that became registered pension schemes on 6 April 2006 the first pension input period began:
For plans that became registered pension schemes on or after 6 April 2006 the pension input period will start on the 'relevant commencement date'. The 'relevant commencement date' for:
For plans that became registered pension schemes before 6 April 2011 the first pension input period runs for one day more than 12 months. Second and subsequent pension input periods run for 12 months from the day after the first pension input period ends (e.g. first input period 30 October 2009 to 30 October 2010, second input period 31 October 2010 to 30 October 2011).
For plans that start on or after 6 April 2011, the default end date will be the next 5 April. Subsequent pension input periods will be aligned with the tax year.
Plan starting before 6 April 2006
Adam has been a member of a defined contribution occupational pension scheme since 1 October 2004. The first contribution paid on or after 6 April 2006 was paid on 15 April 2006. The first pension input period ran from 15 April 2006 to 15 April 2007. Subsequent pension input periods will run from 16 April to 15 April each year.
Defined benefit scheme starting before 6 April 2006
The Eve Limited Defined Benefits Pension Scheme started on 1 October 2004 and benefits started accruing from that date. Benefits were accruing on 6 April 2006. The first pension input period ran from 6 April 2006 to 6 April 2007. Subsequent pension input periods will run from 7 April to 6 April each year.
A plan starting after 6 April 2006 but before 6 April 2011
John started a personal pension plan on 1 November 2010 and pays the first contribution that day. The first pension input period ran from 1 November 2010 until 1 November 2011. Subsequent pension input periods will run from 2 November to 1 November each year.
A plan starting after 6 April 2011
Dev started a personal pension plan on 1 November 2012 and pays the first contribution that day. The first pension input period ran from 1 November 2012 until 5 April 2013. Subsequent pension input periods will run from 6 April to 5 April each year
A new entrant to a defined benefit scheme after 6 April 2011
Sinita joined The Eve Limited Defined Benefit Pension Scheme (see above) on 5 September 2012. She started accruing benefits on that day. Her first pension input period runs from 5 September 2012 to 5 April 2013, the end of the current scheme pension input period. Subsequent pension input periods will run from 7 April to 6 April each year, i.e. in line with the scheme.
You can but there are some conditions.
It is not possible to retrospectively alter pension input periods. It is only possible to change a date in the future.
It is possible to close a pension input period early so that it lasts for less than 12 months. But, you can't have two pension input periods for the same pension plan ending in the same tax year. This restricts the ability of an existing plan/scheme to close a pension input period early.
It's also possible to extend the current pension input period beyond 12 months so long as it still ends in the tax year after the tax year in which the previous pension input period ends.
For example, a plan's current pension input period runs from 1 February 2014 to 31 January 2015. The pension input period could be extended to any date in the 2014/15 tax year. This could be as late as 5 April 2015, giving a pension input period that lasts 14 months. The annual allowance that applies will still be £40,000 but subsequent pension input periods will be aligned with the tax year. However, it couldn't end on 5th April 2014 or earlier as that would mean two pension input periods would have ended in the 2013/14 tax year.
Further information is in HMRC's changing pension input periods guidance.
For a money purchase scheme that is not a cash balance scheme, the scheme administrator and the scheme member can decide to end it sooner (or later).
For any other type of scheme, only the scheme administrator can decide this.
This revised date is referred to as a nominated date.
Under a money purchase scheme if both the scheme administrator and the scheme member ask to make a nomination, then it is the nomination date of the first person to ask.
There are several reasons why a change may be requested, these include:
Somebody who earns £100,000 would like to pay a member contribution of £80,000 into a new money purchase pension scheme before the end of the 2015/16 tax year.
They pay a gross amount of £40,000 on the 1 November 2015.
As this is the first contribution to a new plan the input period would normally run from 1 November 2015, the date of the first contribution, to 5 April 2016. The member can request a nomination date earlier than this so they nominate 30 November 2015.
The end of the first input period was in the 2015/16 tax year therefore the annual allowance was £40,000. Assuming that no other pension contributions were paid by them or on their behalf in the same input period or to pension input periods ending in 2015/16 for other pension plans, then there will be no annual allowance charge.
On 1 December 2015 they pay an additional gross amount of £40,000.
The second contribution was paid in a pension input period that will end on 30 November 2016. As this is in the 2016/17 tax year, the annual allowance will be £40,000. Again as long as no other pension contributions are paid by them or on their behalf in the same pension input period or pension input periods ending in 2016/17 for other pension plans, there will be no annual allowance charge.
Tax relief is based on tax years. Therefore in this example a gross amount of £80,000 was paid in the 2015/16 tax year. For the member to be able to claim tax relief on the entire pension contribution of £80,000 they must have earnings to justify this. If the contribution had been paid by the employer rather than the member then it would be up to the employer's local inspector of taxes whether 100% corporation tax relief is granted on the contribution.
This information provided is based on our current understanding the Finance Act 2011, associated documents and existing legislation, and may be subject to alteration as a result of changes in legislation or practice.
Published 25 November 2010