This article explains how pension input periods operated before the 8 July 2015 Budget announcements. Since then pension input periods have been 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.
Before 8 July 2015 the pension input period didn't need to be the same as a tax year (from 6 April to 5 April) and it was possible to change the dates.
Individuals may have several different pension arrangements over one or more registered pension schemes. It was possible that these may have had 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 an individual takes benefits as a result of severe or serious ill-health 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 had 34 years of benefits accrued in a defined benefit scheme. The scheme provided a pension of 1/60 of pensionable salary for each year of pensionable service.
His pensionable salary was £36,000. In year 35 he got a promotion and his new salary was £42,000. His pension input period ended 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 was over the annual allowance. He would have told HM Revenue & Customs (HMRC) he had exceeded the annual allowance through his tax return. The excess would have suffered an annual allowance charge effectively removing all tax relief on the excess. If he had any unused annual allowance from previous years this could have been carried forward to remove or reduce the annual allowance charge.
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 individual'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 an individual'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 individual's marginal rate of tax and will be dealt with through their 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 ran for 12 months and didn't have to run with the tax year.
For plans set up after 6 April 2011 the first pension input period had a default end date of the following 5 April. They would then run in line with the tax year.
Before 8 July 2015 pension input periods could be changed; see Could 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 ran for one day more than 12 months. Second and subsequent pension input periods ran for 12 months from the day after the first pension input period ends (for example, the first input period 30 October 2009 to 30 October 2010, second input period 31 October 2010 to 30 October 2011).
For plans that started 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. Up until 8 July 2015 subsequent pension input periods ran 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. Up until 8 July 2015 subsequent pension input periods ran from 7 April to 6 April each year.
|A plan starting after 6 April 2006 but before 6 April 2011||
Phil 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. Up until 8 July 2015 subsequent pension input periods ran 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. Up until 8 July 2015 subsequent pension input periods ran 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 ran from 5 September 2012 to 5 April 2013, the end of the scheme pension input period. Up until 8 July 2015 subsequent pension input periods ran from 7 April to 6 April each year, so in line with the scheme.
You could but there were some conditions.
It was not possible to retrospectively alter pension input periods. It was only possible to change a date in the future.
It was possible to close a pension input period early so that it lasted for less than 12 months. But, you couldn't have two pension input periods for the same pension plan ending in the same tax year. This restricted the ability of an existing plan/scheme to close a pension input period early.
It was also possible to extend a pension input period beyond 12 months so long as it still ended in the tax year after the tax year in which the previous pension input period ended.
For example, a plan's pension input period ran from 1 February 2014 to 31 January 2015. The pension input period could have been extended to any date in the 2014/15 tax year. This could have been as late as 5 April 2015, giving a pension input period that lasted 14 months. The annual allowance that applied was still £40,000 but subsequent pension input periods were aligned with the tax year. However, it couldn't end on 5 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 individual could have decided to end it sooner (or later).
For any other type of scheme, only the scheme administrator could decide this.
This revised date was referred to as a nominated date.
Under a money purchase scheme if both the scheme administrator and the individual asked to make a nomination, then it was the nomination date of the first person to ask.
There were several reasons why a change may have been requested, these included:
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.