Pension Providers are obliged to issue “Pension Savings Statements” to all members whose employer and employee inputs exceed the standard Annual Allowance* (£40,000) in the tax year.
What are Pension Savings Statements?
Any statements to be issued for 2016/17 should now have been issued. Receiving one of these statements does not necessarily mean that an Annual Allowance excess tax charge is due, as you may have unused Annual Allowances from previous years that may be carried forward to increase the standard £40,000 – your scheme administrator will not know if this is the case and it will not be reflected in the statement.
Why is the statement issued?
The statement is issued because it is a legislative requirement. The purpose of the statement is to act as a prompt for you to check your inputs and all available Annual Allowances and to provide the information you will need to do the calculations. It is not an assessment of whether or not a tax charge is payable.
What should I do if I receive a Pension Savings Statement?
You should add up all pension inputs for the 2016/17 year and check this against the standard Annual Allowance of £40,000 plus any unused Annual Allowances from the three previous years from 2013/14 to 2015/16. If you have been an active member of other pension arrangements in those periods you will need Pension Savings Statements from them too, or the same information in some other form.
HMRC provides a free, online Annual Allowance calculator at https://www.tax.service.gov.uk/paac but if you are unsure about the inputs or how to use the calculator, please speak to your employer or Kerr Henderson consultant.
* Money Purchase Annual Allowance
When you take taxable income under a flexi-access pension arrangement, you become subject to a reduced Money Purchase Annual Allowance which was £10,000 for 2016/17. (It will be £4,000 for 2017/18 although the Bill in which this change was confirmed has not yet received Royal Assent). Once you are subject to the Money Purchase Annual Allowance, contributions to money purchase plans are restricted and you cannot carry forward unused Annual Allowances from previous years. (Accrual under a defined benefits (final salary) scheme is not limited by the Money Purchase Annual Allowance and carry forward is still permitted.)
Tapered Annual Allowance
Very broadly, if your adjusted income exceeded £150,000 and threshold income exceeded £110,000 in 2016/17, your Annual Allowance will be tapered to something between £40,000 and £10,000. Guidance can be found at https://www.gov.uk/guidance/pension-schemes-work-out-your-tapered-annual-allowance but if you require assistance, please speak to your employer or Kerr Henderson consultant.
If you do require assistance in relation to any of the above, your Kerr Henderson consultant will agree any charges with you in advance before commencing any work.
Other:
AUTUMN 2017 BUDGET – CONFIRMED FOR 22 NOVEMBER 2017. It is not possible to predict what the Budget will bring, but it is possible that the Chancellor may seek to address the increasing cost of pension tax relief.