Suffolk Life - Adviser - Technical - Contributions

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PENSION INPUT PERIODS

Your client will have a pension input period (PIP) for each registered pension scheme they are a member of and they may all be different. A PIP for a money purchase scheme such as a SIPP commences either:

when the first contribution is paid, if it is after 6 April 2006; or
on 6 April, if they were making contributions prior to 6 April 2006.

The initial PIP does not have to end 12 months after its commencement. It may end on an earlier, more convenient date. This date may be chosen by the scheme administrator or member. Please note that only one PIP for a client can end in each tax year for each registered pension scheme of which that client is a member. If you do not notify us otherwise, we will default all PIP end dates to the next 5 April following the first contribution being paid. If your client wants this to be changed, please advise us in writing.

Example
Jane is an active member of three registered pension schemes - A, B and C - each with a different PIP end date: 31 March, 5 April and 30 November respectively. For each of the PIPs ending in the tax year 2008/2009 Jane's pension input amounts (gross contributions) for each scheme were as follows:

Scheme	PIP start date	PIP end date	Pension input
A	31 March 2008	31 March 2009	£54,000
B	5 April 2008	5 April 2009	£98,000
C	30 November 2007	30 November 2008	£98,000
			£250,000

The annual allowance for the tax year 2008/2009 is £235,000. Jane will therefore be taxed at 40% personally on the excess over this amount (i.e. 40% of £15,000). However, Jane can avoid being taxed by closing her Scheme C input period earlier:

Scheme	PIP start date	PIP end date	Pension input
A	31 March 2008	31 March 2009	£54,000
B	5 April 2008	5 April 2009	£98,000
C	30 November 2007	2 February 2008	£98,000

The PIP end date for Scheme C is now 2 February 2008, as highlighted. As a result, it ends before the 2008/2009 tax year and therefore ends in the 2007/2008 tax year. Now, the annual allowance of £235,000 for the tax year 2008/2009 is not exceeded, as the pension input is only £152,000 (£54,000 + £98,000), as opposed to the former amount of £250,000.

In summary, Jane has made use of closing her Scheme C pension input period earlier in order to avoid being taxed on any potential annual allowance excess, as she had unused annual allowance in respect of the 2007/2008 tax year of more than £98,000.

For another example regarding making use of closing pension input periods early, please refer to our case studies section.

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