This page only covers defined contribution (money purchase plans). A separate article covers defined benefits schemes.
All PIPs open on 8 July 2015 automatically ended on 8 July 2015. The next PIP for everybody ran from 9 July 2015 to 5 April 2016. Since 6 April 2016 all PIPs are aligned with the tax year, that is they run from 6 April to 5 April each year.
It was possible that existing plans could have two or three PIPs ending in the tax year 2015/16.
Amy's PIP ran from 1 May 2014 to 30 April 2015 (ending in 2015/16 tax year).
She ended it on 15 April 2015 after paying a pension contribution of £40,000 and paid another £40,000 on 20 April 2015. Under the old rules, the payment on 20 April 2015 would have been in the next PIP ending in the 2016/17 tax year.
The transitional arrangements meant she had the following PIPs, all ending in the 2015/16 tax year:
Amy had, quite properly, paid £80,000 in the 2015/16 tax year as originally the contributions were spread over PIPs ending in different tax years.
The transitional rules ensure that the enforced move to PIPs aligned with the tax year didn't result in Amy facing a charge because she had paid £80,000 in PIPs ending in 2015/16.
Everyone had a total annual allowance of £80,000 for PIPs ending in 2015/16, plus any available carry forward from the 2012/13, 2013/14 and 2014/15 tax years.
Savings for PIPs ending in 2015/16 were split into two mini tax years:
Individuals had an annual allowance of £80,000, plus any carry forward, for all PIPs ending between 6 April 2015 and 8 July 2015.
Savings from 9 July 2015 to 5 April 2016 had a nil annual allowance but up to £40,000 of any unused annual allowance from the period 6 April 2015 up to 8 July 2015 (pre-alignment tax year) were added to this.
Any unused annual allowance from 2012/13, 2013/14 and 2014/15 could have been added.
So in Amy's example, having paid £40,000 on 15 April 2015 and another £40,000 on 20 April 2015 she had no further annual allowance to carry forward to the 3rd (post-alignment) PIP of 2015/16 but that was no different to her situation under the old rules.
Anne's PIP ran from 1 June 2014 to 31 May 2015 (ending in the 2015/16 tax year). She paid £30,000 up to 6 April 2015 and then ended the PIP on 15 April 2015, after paying a further pension contribution of £10,000 on 14 April 2015.
Under the old rules, the PIP starting on 16 April 2015 would end in the 2016/17 tax year.
Under the transitional rules, as Anne paid a total of £40,000 in the PIPs ending in the period to 8 July 2015, she would have £40,000 annual allowance to use in the 3rd PIP running from 9 July 2015 to 5 April 2016.
All PIPs ending in 2015/16 tax year
Individuals who flexibly access pension savings in a money purchase plan will trigger the MPAA. If the MPAA is exceeded, a reduced annual allowance of £36,000 applies to other pension savings (in other words defined benefit pension savings) for PIPs in that tax year. This is called the 'alternative' annual allowance.
The transitional rules for MPAA worked in a similar manner to those for the annual allowance, so if the MPAA was triggered in the pre-alignment tax year:
*The MPAA in 2015/16 was £10,000 and reduced to £4,000 with effect from 6 April 2017.
The MPAA for savings made during the post-alignment tax year was the balance of the £20,000 that had not been used from the pre-alignment tax year, subject to a maximum of £10,000. No further carry forward could have been added as carry forward is not available for MPAA.
The alternative annual allowance was nil for the post-alignment tax year but again any unused annual allowance from the pre-alignment tax year could have been added to this plus any unused annual allowance from 2012/13, 2013/14 or 2014/15.
What annual allowance was available in the post-alignment tax year depended on whether the charge resulting from applying the annual allowance to total pre-alignment savings produced a greater (a) or lesser (b) charge than applying the MPAA to money purchase savings.
(a) the amount of charge payable was greater - up to £40,000 could have been carried forward from the pre-alignment tax year.
(b) the amount of charge payable was less - up to £30,000 could have been carried forward.
Camilla flexibly accessed her pension on 1 May 2015. She was therefore subject to the MPAA in both the pre and post-alignment tax years. Her total savings for the pre-alignment tax year were £40,500:
She therefore had an MPAA of £9,000 (£20,000 - £11,000) for the post-alignment tax year.
Camilla's total savings were £500 over the £40,000 annual allowance but her money purchase savings were £1,000 over the MPAA.
This meant that (b) above applies to Camilla and the maximum amount of ‘ordinary' annual allowance that could have been carried forward to the post-alignment tax year was £30,000.
This was because the defined benefit pension savings were only £29,500.
Deducting this from the maximum alternative annual allowance for the pre-alignment period of £60,000 produces £30,500 but the maximum that could have been carried forward is £30,000.
Barry flexibly accessed his pension on 1 May 2015. He was therefore subject to the MPAA in both the pre and post-alignment tax years. His total savings for the pre-alignment tax year were £42,000 of which £8,000 were money purchase savings.
He therefore had a £10,000 MPAA for the post-alignment tax year. As his money purchase savings didn't exceed the MPAA, the alternative annual allowance didn't apply.
The amount of ‘ordinary' annual allowance that applied in the post-alignment tax year was therefore £38,000 (£80,000 - £42,000).
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.