Proposals to align pension input periods (PIPs) with the tax year from 6 April 2016 were announced in the 2015 Summer Budget. The transitional rules which affect the 2015/16 tax year open up the possibility of doubling the available allowance for the year to £80,000.
The alignment of pension input periods (PIP) with the tax year in 2015/16 means that all PIPs which are open at 8 July 2015 are closed on that date. Pension savers might therefore have two or three PIPs during the tax year depending upon the timing of their PIPs.
Savers with a PIP ending in May 2015 might already have made contributions of £80,000 before the proposals were announced on 8 July 2015: one contribution of £40,000 in May 2015 which fell into the 2014/15 PIP, and one contribution of £40,000 in June 2015 which fell into the 2015/16 PIP. Both contributions would have been within the annual allowance as it was applied at the time.
To avoid penalising these savers, the annual exemption for 2015/16 has been doubled to £80,000, with the 2015/16 year split into two parts:
- 6 April 2015 to 8 July 2015 and
- 9 July 2015 to 5 April 2016
Up to £80,000 annual allowance can be used prior to 8 July 2015, with the unused balance carried forward to be used in the period from 9 July 2015 up to a maximum of £40,000.
There is no additional benefit for individuals who did not make any contribution prior to 8 July 2015; they are limited to making contributions of £40,000 before the start of the new PIP on 6 April 2016.
However, individuals who have already made contributions before 8 July 2015 can potentially take advantage of a one-off opportunity to increase their pension savings.
Example:
- Bob's pension has an input period 1 May to 30 April. He always makes his maximum contribution in a lump sum on 30 April, and made a contribution of £40,000 on 30th April 2015.
- Due to the transitional alignment rules, he can now make a further contribution of £40,000 at any time from 9 July 2015 to 5 April 2016.
- From 5 April 2016 his new input period is 6 April 2016 to 5 April 2017 and so he can make a further £40,000 as usual on 30 April 2016.
If Bob is a company director, then his company can make the two payments of £80,000 in 2015/16, and the third payment in 2016/17, receiving a full deduction from its taxable profits with no charge to Bob.
