Annual Allowance Question

5-Star

I have been looking at the contribution my final salary will make towards next years (2012/13) £50K allowance. Following the HMRC guide I calculate that the pension value at the start of the tax year when uplifted for CPI will be less than the pension value at the end of the year due to the CPI uplift (5.2% - CPI sept 11) being more than the my pension accrual rate including salary increase. So when I subtract the uplifted starting value from the closing value I get a negative amount (approx - £5K) for the contribution towards the £50K.

I can’t see anything on the HMRC site that refers to this situation so what happens – ignoring any carryover, does it mean I could contribute £55K (not that I have £55K ) in AVC’s before exceeding the annual allowance?

Zelazny

I think you would still be limited to £50k AVCs, but could be wrong. This is the sort of thing that you need a very good lawyer to argue for you, as it's not all that clear at present. My reading is based on:

From http://www.hmrc.gov.uk/pensionschemes/annual-allowance/arrange-types.htm
Regarding DB benefits with AVCs: "Here you would be a member of a defined benefits arrangement and a member of a money purchase arrangement under the same scheme."
Seems to be fairly clear that they are separate arrangements, even though they're under the same scheme.

From http://www.hmrc.gov.uk/pensionschemes/annual-allowance/pension-input.htm
Regarding DB benefits: "If the difference is a negative amount then your pension savings for the arrangement is nil."
Seems to me that this implies that the arrangements are looked at separately.

Of course, I'm not an expert so don't take anything I say as gospel.

RichandJ

I'd say you could do the £50k AVCs (50, not 55).

ALL your Pension Input Amount (PIA) has to be below £50k to avoid a tax charge so if your PIA from your DB arrangement is negative that is counted as zero, ergo you've still got £50k left.

That's our corporate understanding, but must stress you'd need to get definitive figures from the admin of your DB scheme - you mention tax year but the Pension Input Period in your scheme may not be aligned with the tax year.

5-Star

Thank you both for the clarification - I thought it would be too good to be true!