Deferred Final Salary and Impact upon Annual Contribution

super_reds

Hi

I've tried looking around the HMRC website but can't seem to find anything to fit my situation.

During 2014-15 I became a deferred member of a Final Salary scheme. In 2015-16 I work for myself via a Limited Company.

I intend to have contributions paid from the Limited Company into a SIPP but will the annual allowance be impacted by the small uplift of my final salary benefit resulting from inflation?

One final question if the company wanted to make further contributions above the £40k limit would that be possible provided I have under utilised capacity from previous years?

Thanks in advance

AlanP_2

Annual Allowance is set against INPUT amounts as opposed to value of benefit from a DB so inflation uprating won't impact on that.

Previous years (3 I think) unused allowance can be carried forward and utilised to go >40k in the year (subject to annual earnings limits) provided you were in Pension Scheme for the years you are carrying forward.

Not sure if being a deferred member counts for that last point?

kidmugsy

AlanP wrote: »

Annual Allowance is set against INPUT amounts as opposed to value of benefit from a DB so inflation uprating won't impact on that.

That's contrary to much that I've read. Inputs to DB matter not a hoot, it's the increase in value that counts. For DC or SIPP, it's gross inputs that count.

xylophone

http://www.hmrc.gov.uk/manuals/rpsmmanual/rpsm06105030.htm
may be relevant.

super_reds

kidmugsy wrote: »

That's contrary to much that I've read. Inputs to DB matter not a hoot, it's the increase in value that counts. For DC or SIPP, it's gross inputs that count.

Thanks, I understood the same when was an active member but I think the response below means the uplift due to inflation doesn't utilise any of the annual allowance which would make sense to me.

kidmugsy

super_reds wrote: »

Thanks, I understood the same when was an active member but I think the response below means the uplift due to inflation doesn't utilise any of the annual allowance which would make sense to me.

xylophone's link agrees with you - they simplify the treatment of DEFERRED DB pensions by exempting, for instance:

"... for the arrangement to be treated as having no pension input amount any increase in the member’s benefits under the arrangement cannot be more than

is required by the pension scheme rules in force on 14 October 2010, or otherwise
the increase in the Consumer Prices Index (CPI) over the twelve month period ending with a month that falls within the pension input period (the month having been chosen by the scheme administrator)."

BUT NOTE
"If an individual has left a pension scheme but their future benefits are still linked to their final salary the individual is not a ‘deferred member’ for the purpose of the tax rules. This is because the individual is still accruing benefits to the continued salary link. Any pension saving (calculated in the usual way for pension input amounts generally, including the CPI uplift on the opening value) counts as a pension input amount and so towards the annual allowance."

AlanP_2

kidmugsy wrote: »

That's contrary to much that I've read. Inputs to DB matter not a hoot, it's the increase in value that counts. For DC or SIPP, it's gross inputs that count.

You're correct and re-reading my response the way I worded it was misleading - Apologies to the OP.

I meant the inflation uprating would not be applicable to the calculation as it wasn't an "input"

Your subsequent post (the one above this) seems to cast some doubt on that statement though.

I have a deferred DB pension linked to Final Salary (at point of leaving) and none of the forecasts and paperwork associated with it mention any Annual Allowance "valuations" or implications.

Not that I am anywhere near exceeding the AA so not a problem for me but others could inadvertently be caught out by this.

super_reds

AlanP wrote: »

You're correct and re-reading my response the way I worded it was misleading - Apologies to the OP.

I meant the inflation uprating would not be applicable to the calculation as it wasn't an "input"

Your subsequent post (the one above this) seems to cast some doubt on that statement though.

I have a deferred DB pension linked to Final Salary (at point of leaving) and none of the forecasts and paperwork associated with it mention any Annual Allowance "valuations" or implications.

Not that I am anywhere near exceeding the AA so not a problem for me but others could inadvertently be caught out by this.

I wonder if the point here is when the final salary is calculated? I think in yours and my case Alan that it was leaving employment but potentially in kidmugsy's scenario the deferred pensioner is entitled to link pension to a salary that is still moving and thus getting an uplift above and beyond inflation?

AlanP_2

super_reds wrote: »

I wonder if the point here is when the final salary is calculated? I think in yours and my case Alan that it was leaving employment but potentially in kidmugsy's scenario the deferred pensioner is entitled to link pension to a salary that is still moving and thus getting an uplift above and beyond inflation?

Just wish mine was linked to a salary that kept on increasing after I left :T

Can't visualise the circumstances in which that scenario would apply but it is certainly what it sounds like.