Roger Tull, co-founder of Adviser Compass, highlights a potential problem regarding pension input periods.
Most of us will recall that in 2006 the previous Government made efforts to simplify the complexities of pension planning, bringing together some of the old diverse pension regimes, and bringing in a new Lifetime Allowance and a new (and surprisingly high) Annual Allowance for contributions - a gross payment of 100% of earned income would qualify for tax relief, up to a maximum of £235,000 in 2011-2012.
One of the first steps in the "re-complexification" of pensions was a series of measures to limit higher rate tax relief, but more recently, last December's Finance Bill announced the intention to reduce the maximum contribution to £50,000. This brings us to a hitherto unimportant concept, that of "input periods".
Pension Input Period
The input period for a pension scheme is established by the scheme administrator. Some companies use 5th April as their default, but many policies are based on their date of inception, so the input period will end on the policy anniversary.
For example, LV has a default date of 5th April, unless told otherwise, whereas Legal & General and Clerical Medical use the policy anniversary for their Stakeholder pensions.
This means that a contribution in March 2011 to a plan set up on a policy anniversary of 1st September 2007 will be counted against NEXT YEAR'S Annual Allowance because the input period ends in 2011-2012. Tax relief is still given against income in 2010-2011.
This creates an obvious difficulty for anyone wanting to pay (say) £30,000 in 2010-2011 and another £30,000 in 2011-2012, as £60,000 paid to a policy with an input period ending next tax year will exceed the Annual Allowance for 2011-2012.
Is there an answer? Yes, and it's very simple as the rules permit the input period to be changed. First of all, check the input period for your pension plan(s) and write to request a change to 5th April, with effect from 5th April 2011. This aligns the contributions to the tax year, which is simpler and much easier to remember!
This simple precaution leaves all the options open for this year and next.