Since the summer Budget on 8 July 2015 pension input period have been aligned with the tax year (6 April to 5 April).
It is not possible to change a pension input period.
For more information on the position before 8 July 2015 see our article Pension input periods and pension input amounts (pre 8 July 2015 rules).
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 an individual takes benefits as a result of:
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 on 5 April 2022.
Calculate the opening entitlement. This is 34/60 x £36,000 = £20,400. Add any tax-free cash that is not paid by commutation.
Multiply the opening entitlement by 16. £20,400 x 16 = £326,400.
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 0.5%, the up-rated value would be £326,400 x 1.005 = £328,032.
Calculate the closing entitlement. This is 35/60 x £42,000 = £24,500. Add any tax-free cash that is not paid by commutation.
Multiply the closing entitlement by 16. £24,500 x 16 = £392,000.
Calculate the difference between the revalued opening entitlement and the closing entitlement. This is £63,968 [£392,000 - £328,032].
In this example Fred is over the annual allowance. He needs to tell HM Revenue & Customs (HMRC) he has exceeded the annual allowance through his tax return. The excess will suffer an annual allowance charge that will effectively remove all tax relief on the excess. If he has any unused annual allowance from previous years this can be carried forward to remove or reduce the annual allowance charge.
They matter because the pension input amount is measured against the annual allowance in force at the end of the pension input period.
If the pension input amount from all the individual's plans ending in that tax year is greater than the annual allowance available, an annual allowance charge is due. If the end of the pension input period is 5 April 2023 it will be tested against the 2022/23 limit of £40,000. The tax charge is at the individual's marginal rate of tax and will be dealt with through their tax return.
The steps for calculating the annual allowance charge and how to pay the annual allowance charge can be found in HMRC's pensions tax manual.
It's possible to carry forward unused annual allowance from previous pension input periods to increase the amount of annual allowance or tapered annual allowance available. You cannot use carry forward if the money purchase annual allowance applies.
The pension input period lasts from the day the first regular or single contribution is paid to the plan and runs to the following 5 April. They then run in line with the tax year.
The information provided is based on our current understanding of the relevant legislation and regulations and may be subject to alteration as a result of changes in legislation or practice. Also it may not reflect the options available under a specific product which may not be as wide as legislations and regulations allow.
All references to taxation are based on our understanding of current taxation law and practice and may be affected by future changes in legislation and the individual circumstances of the investor.