AVCs - which tax year for pension input calculation

Workerbee999

My pension provider has given me the pension input value for 23/24 which was a combination of DB and AVCs. It was lower overall than expected and once provided with the detail I can see that they have only included AVCs contributions that they have received from my employer in the year, not that was deducted from my pay in the year - because it takes around 3 weeks for them to pay it over they only received March’s in April. (The DB part is as expected).

Is this correct? My taxable pay takes the deductions into account in 23/24? My company does not operate salary sacrifice although the deduction is made from gross pay before tax, so it’s not an employer contribution.

I have modelled my pension contributions specifically to maximise all carry forward and by doing it this way I would lose £10k allowance from 3 years ago, and it also means I would need to reduce the current year contributions as more is being put again 24/25 than I expected. 23/24 was the first year I did AVCs so I didn’t get any offsetting impact at the start of the year.

can I challenge this? My payslips clearly show the deductions for the year, and it makes no sense to me for the pension input calculation to be attributed to a different year than the one with the impact on taxable pay? What would happen if I retired in March and the contributions are treated as being April but I have no earnings in that year?

or can I ignore what the pension company says and just keep my own records with it allocated to 23/24 in line with the deductions?

Thanks 

dunstonh

https://www.gov.uk/hmrc-internal-manuals/pensions-tax-manual/ptm041000

Workerbee999

Thanks Dunstonh. It seems the pension provider has done it wrong then, and it should include everything deducted from payroll in the year

zagfles

Is it definitely not sal sac? We've had people on here before adamant that their contributions aren't sal sac but the figures from the payslip proved that it was in fact sal sac. Seems some employers change to sal sac without making it clear to employees. 

The way to check is see whether you're being charged NI on your pension contributions. If you aren't, then it's sal sac. Also with sal sac you'd generally see the pension deduction as a negative in the left column of the payslip, with "net pay" it's usually in the right (deductions) column. With "net pay" you should see in the YTD cumulative figures a gross pay figure, a pension cont figure, and a taxable pay which is gross minus pension conts

Workerbee999

It’s definitely not salsac. Deduction is the right hand column and it doesn’t impact NI. It’s not salsac for historical union reasons (as NI saving wasn’t being shared) and in my role I’d be involved if that was ever going to change.

Workerbee999

Hi

it has taken a while but I have now received this response from my pension administrators (Railpen). It’s not the response I hoped for as it has mucked up my careful planning of pension contributions to maximise carry forward usage and also impacts what I can contribute this year. If I had known I would have made a one-off cash contribution to them instead and claimed the tax relief back on my tax return. 

Is there anything I can do to challenge this? Do they tell HMRC this info or can I keep to the allocation based on payroll deduction? as I know we don’t have to put it in a tax return but have to have our own records of carry forward usage etc. in case it is asked for? They say they cannot easily identify the period it relates to but really it’s very simple from a 4 weekly payroll and easily provable from payslips….plus they have rules of what % of pay can go into AVCs in a year and Payroll only confirm the annual max at the end of the tax year.

It seems really odd to me that my taxable pay reported to HMRC nets these contributions down in 23/24 but the contributions are only counted in 24/25 against the annual allowance if they haven’t received the cash at the year end. There is nothing in the scheme documentation that I can find that states this is how it is done and thinking logically, it creates the risk of someone retiring at the end of a tax year and then having PIA amounts in the next tax year but no earned income?

Pension Input Amount (PIA)

The policy we adopt of calculating a member’s money purchase Pension Input Amount (PIA) based on when contributions are received is allowable by HMRC and is the approach we adopt on the basis that we do not always know when contributions have been deducted from pay.

 

Although the legislation relating to the calculation of the PIA suggests that the PIA should be based on when contributions are deducted from pay, rather than when they are received, HMRC guidance states that:

 

“… a scheme administrator may not readily be able to identify the date of deduction from pay from their member records. In these circumstances the scheme administrator may… use the date the money was received by the pension scheme… for the purposes of determining… details of pension input amounts attributable to pension input periods…”

 

As such, we conclude that your PIA calculations are correct on the basis of the above.

Dazed_and_C0nfused

Workerbee999 said:

Hi

it has taken a while but I have now received this response from my pension administrators (Railpen). It’s not the response I hoped for as it has mucked up my careful planning of pension contributions to maximise carry forward usage and also impacts what I can contribute this year. If I had known I would have made a one-off cash contribution to them instead and claimed the tax relief back on my tax return. 

Is there anything I can do to challenge this? Do they tell HMRC this info or can I keep to the allocation based on payroll deduction? as I know we don’t have to put it in a tax return but have to have our own records of carry forward usage etc. in case it is asked for? They say they cannot easily identify the period it relates to but really it’s very simple from a 4 weekly payroll and easily provable from payslips….plus they have rules of what % of pay can go into AVCs in a year and Payroll only confirm the annual max at the end of the tax year.

It seems really odd to me that my taxable pay reported to HMRC nets these contributions down in 23/24 but the contributions are only counted in 24/25 against the annual allowance if they haven’t received the cash at the year end. There is nothing in the scheme documentation that I can find that states this is how it is done and thinking logically, it creates the risk of someone retiring at the end of a tax year and then having PIA amounts in the next tax year but no earned income?

Pension Input Amount (PIA)

The policy we adopt of calculating a member’s money purchase Pension Input Amount (PIA) based on when contributions are received is allowable by HMRC and is the approach we adopt on the basis that we do not always know when contributions have been deducted from pay.

Although the legislation relating to the calculation of the PIA suggests that the PIA should be based on when contributions are deducted from pay, rather than when they are received, HMRC guidance states that:

“… a scheme administrator may not readily be able to identify the date of deduction from pay from their member records. In these circumstances the scheme administrator may… use the date the money was received by the pension scheme… for the purposes of determining… details of pension input amounts attributable to pension input periods…”

As such, we conclude that your PIA calculations are correct on the basis of the above.

That seems to be a partial quote from the HMRC pension schemes manual.

Not clear if you have removed bits or if the pension administrators have been selective with the part quoted?

https://www.gov.uk/hmrc-internal-manuals/pensions-tax-manual/ptm053200

Workerbee999

Dazed_and_C0nfused said:

Workerbee999 said:

Hi

it has taken a while but I have now received this response from my pension administrators (Railpen). It’s not the response I hoped for as it has mucked up my careful planning of pension contributions to maximise carry forward usage and also impacts what I can contribute this year. If I had known I would have made a one-off cash contribution to them instead and claimed the tax relief back on my tax return. 

Is there anything I can do to challenge this? Do they tell HMRC this info or can I keep to the allocation based on payroll deduction? as I know we don’t have to put it in a tax return but have to have our own records of carry forward usage etc. in case it is asked for? They say they cannot easily identify the period it relates to but really it’s very simple from a 4 weekly payroll and easily provable from payslips….plus they have rules of what % of pay can go into AVCs in a year and Payroll only confirm the annual max at the end of the tax year.

It seems really odd to me that my taxable pay reported to HMRC nets these contributions down in 23/24 but the contributions are only counted in 24/25 against the annual allowance if they haven’t received the cash at the year end. There is nothing in the scheme documentation that I can find that states this is how it is done and thinking logically, it creates the risk of someone retiring at the end of a tax year and then having PIA amounts in the next tax year but no earned income?

Pension Input Amount (PIA)

The policy we adopt of calculating a member’s money purchase Pension Input Amount (PIA) based on when contributions are received is allowable by HMRC and is the approach we adopt on the basis that we do not always know when contributions have been deducted from pay.

Although the legislation relating to the calculation of the PIA suggests that the PIA should be based on when contributions are deducted from pay, rather than when they are received, HMRC guidance states that:

“… a scheme administrator may not readily be able to identify the date of deduction from pay from their member records. In these circumstances the scheme administrator may… use the date the money was received by the pension scheme… for the purposes of determining… details of pension input amounts attributable to pension input periods…”

As such, we conclude that your PIA calculations are correct on the basis of the above.

That seems to be a partial quote from the HMRC pension schemes manual.

Not clear if you have removed bits or if the pension administrators have been selective with the part quoted?

https://www.gov.uk/hmrc-internal-manuals/pensions-tax-manual/ptm053200

That’s exactly what they said in their email, I didn’t cut any bits out

Workerbee999

Date contribution paid - net pay arrangements

The pension input amount for other money purchase arrangements includes the relievable pension contribution ‘paid during the pension input period’. The date of payment in the case of a contribution made under a net pay arrangement is the date of deduction from the employee’s pay (in the same way as for the member getting relief on relievable contributions ‘paid during the tax year’).

For annual allowance purposes, a scheme administrator may not readily be able to identify the date of deduction from pay from their member records. In these circumstances the scheme administrator may either use the date the money was received by the pension scheme or an estimate of the date the payment was deducted from salary for the purposes of determining:

• commencement dates for the first pension input period in respect of an arrangement, and
• details of pension input amounts attributable to pension input periods, which are provided to members either automatically or on request.

Where the scheme administrator issues a statement to a member on this basis, the member may rely on the information for Self Assessment purposes for annual allowance purposes.

This is from the link shared above. It says the member “may” rely on the info for self assessment/annual allowance purposes - it doesn’t say “must”, so does that mean I can use date of deduction from pay in my records instead? It seems to me that the administrators are taking an easy option when in reality it’s very easy to identify the year of deduction… or do I have no option but to use their numbers and accept it will cause me to lose out on £10k carry forward that I thought I had utilised - and it means that £10k contribution for last year is now coming out of the current year AA so I will have to adjust current year contributions because of it?

zagfles

To answer your question in the other thread, it looks like the scheme has to report to both you and HMRC if the AA has been exceeded in the scheme, see PTM167100 - Information and administration: other information requirements for scheme administrators: pension savings statements provided automatically to the member - HMRC internal manual - GOV.UK (www.gov.uk) 

Whether you'd be able to argue their figures are based on incorrect info I'm not sure. 

But have you really lost out on £10k carry forwards? That would imply you made a £10k AVC contribution from your March pay that the scheme says comes in the following tax year so you lost £10k available carry forwards from 3 years ago? Or have you misunderstood how the limits work and confused the tax relief limit with the AA? Because when you say "it creates the risk of someone retiring at the end of a tax year and then having PIA amounts in the next tax year but no earned income?", that's not an issue with net pay because the tax relief was given in the payslip so at the point of deduction from pay, so always in the correct tax year. The fact that the PIA was allocated to the next year doesn't matter, as the AA is not restricted by earnings (except for taper for those on very high incomes £200k+)

It could be an issue in a RAS scheme, as there the tax relief is claimed by the scheme. 

Workerbee999

zagfles said:

To answer your question in the other thread, it looks like the scheme has to report to both you and HMRC if the AA has been exceeded in the scheme, see PTM167100 - Information and administration: other information requirements for scheme administrators: pension savings statements provided automatically to the member - HMRC internal manual - GOV.UK (www.gov.uk) 

Whether you'd be able to argue their figures are based on incorrect info I'm not sure. 

But have you really lost out on £10k carry forwards? That would imply you made a £10k AVC contribution from your March pay that the scheme says comes in the following tax year so you lost £10k available carry forwards from 3 years ago? Or have you misunderstood how the limits work and confused the tax relief limit with the AA? Because when you say "it creates the risk of someone retiring at the end of a tax year and then having PIA amounts in the next tax year but no earned income?", that's not an issue with net pay because the tax relief was given in the payslip so at the point of deduction from pay, so always in the correct tax year. The fact that the PIA was allocated to the next year doesn't matter, as the AA is not restricted by earnings (except for taper for those on very high incomes £200k+)

It could be an issue in a RAS scheme, as there the tax relief is claimed by the scheme. 

I haven’t exceeded the £60k limit in that scheme but have in total for the year when taking into account payments to my SIPP, so does that mean they wouldn’t need to report to HMRC? I used some carry forward to do this but had thought I had used all of it.

I actually made a £8.5k contribution in my March pay that they are now attributing to this year, I had rounded it to £10k for ease in the thread.

i guess in this year I can stop the monthly payments I am currently doing now and instead make a similar contribution next March which would similarly move into next year. So that I still get the tax relief on £60k but don’t end up over the AA by this £8.5k?

I’m planning to retire next year, maybe by Christmas, but if I am working until March it sounds like I have the potential to get tax relief on more than £60k (based on current allowances of course, who knows what the budget will bring), as I could contribute £60k up to Feb (including the full year DB PIA) and then pay max AVC in March knowing it would be accounted for the following year - is that right? I had thought use of AA was restricted to earnings but if that’s relevant then it won’t matter if I don’t have any earnings Apr 26+. I guess that could get me back to where I planned to be but not sure I want to work extra just for that.