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Chartered Insurance Institute
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Pensions savings statements

It’s that time of year again when pension savings statements will be issued. They should be issued by 6 October following the end of the relevant tax year. So pension savings statements will shortly be issued for the 2016/17 tax year.

As a reminder, statements are only issued if:  

  • their pension input amounts under the scheme for the tax year are more than the annual allowance amount in section 228 Finance Act 2004 (for example, £40,000 for tax year 2016-17), or
  • the scheme administrator believes the individual has flexibly accessed a money purchase arrangement and the individual’s money purchase pension input amounts under the scheme for the tax year are more than £10,000. (Reducing to £4,000 from 17/18 onwards).

So, for individuals who are subject to the tapered annual allowance, they will not receive a pensions savings statement as a matter of course unless their input has exceeded £40,000.

For individuals that are caught by the tapered annual allowance in this tax year or who are likely to trigger the Money Purchase Annual Allowance(MPAA) in the next tax year, the member should request a pension savings statement to firstly check the input for this tax year but also ascertain the carry forward position.

Once the MPAA has been triggered, the ability to use carry forward in a money purchase arrangement is lost.

For those that are subject to a tapered annual allowance, carry forward is retained but it’s worth keeping a close eye on the point that it is likely to run out.

Annual Allowance charge

If an annual allowance charge is identified, the liability must be reported in the individuals Self-Assessment return, regardless of the how the liability is met. They will need to complete the Additional Information pages of the tax return to show the amount by which their total pension input amount exceeds the annual allowance. The boxes that need to be completed for the annual allowance are in the ‘Pensions savings tax charges’ section (on the additional information pages (SA101) in the paper return. If the individual does not complete a tax return they should contact HMRC to see if they should complete a return.

There are 2 ways to meet the liability.

  • Individual settles the liability with HMRC directly
  • Via Scheme pays – see below

Scheme Pays

Where an individual has an annual allowance liability of at least £2000 and the input for that tax year has exceeded the annual allowance (£40,000 17/18) then they can elect to notify their scheme administrator that they require the scheme to pay some or all of their annual allowance charge liability in return for an appropriate reduction in their pension benefits in the scheme  - either  a cash reduction or reduction in benefits payable at retirement.

If the individual has not exceeded the annual allowance but still wants to use the scheme pays option, because for example they may have exceeded their tapered annual allowance but has no carry forward allowance remaining, then the scheme has discretion whether or not to allow it.  Generally, the individual  must notify the scheme that they wish to use ‘Scheme Pays’ by 31 July in the year following the year in which the tax year to which the annual allowance charge relates ended. The notice must be given to the scheme administrator of the pension scheme concerned. So for a tax charge relating to the 16/17 tax year then they must tell the scheme by 31 July 2018.

It’s complicated

Given the complexity of the annual allowances, whether is the standard, MPAA, alternative annual allowance or tapered annual allowance, it’s essential for advisers to be reviewing input for their clients to maximize efficient contributions whilst the tax regime permits.

A further reminder that The Finance Bill (No2) 2017 contains the legislation, effective from 6th April 2017, to reduce the MPAA £4000.