Pension input periods

These FAQs are for financial advisers only. They mustn’t be distributed to, or relied on by, customers. They are based on our understanding of legislation at the date of publication.

As a consequence of the introduction of the tapered annual allowance rules, the government aligned all pension input periods (PIPs) with tax years with effect from 6 April 2016. This change was announced in the Summer Budget Statement of 8 July 2015.  

It’s a period of time, usually 12 months, which is used to measure the benefits accrued or contributions paid by or on behalf of a member against the annual allowance, money purchase annual allowance and tapered annual allowance. Any benefits accrued or contributions paid in a PIP are counted towards the pension input amount for the PIP.

Prior to 8 July 2015, a pension arrangement could only have one PIP ending in a tax year. In practice, Aegon had customers with pension arrangements where the PIP ran in line with tax years and also where the PIP ran in line with some other period. For example, a PIP may have run from 6 April to 5 April, 1 January to 31 December or 1 June to 31 May. The end date of the PIP determines the tax year the contributions made in the PIP are counted against. So, a PIP ending on 10 April 2014 would have counted towards the annual allowance for the 2014/15 tax year.  

Since 6 April 2016, PIPs just run in line with the tax year. An existing PIP will therefore start on 6 April and end on 5 April in the following year. 

It was announced in the Summer Budget Statement of 8 July 2015 that there was to be an immediate change to the PIP rules. In summary, this meant that:

  • All PIPs that were open on 8 July 2015 for existing arrangements were immediately closed on that date. The next PIP ran from 9 July 2015 until 5 April 2016. Subsequent PIPs then run in line with tax years from 6 April 2016 onwards.
  • Any new arrangements that had their first PIP starting on or after 9 July 2015 and before 6 April 2016, saw that PIP end on 5 April 2016. Subsequent PIPs then run in line with tax years from 6 April 2016 onwards.
  • Any new arrangements with their first PIP starting in the 2016/17 tax year will see that PIP end on 5 April 2017. Subsequent PIPs then run in line with tax years from 6 April 2017 onwards. 
  • It is not possible for an individual or a scheme administrator to vary the end date of a PIP. 

The change to the PIP rules on 8 July 2015 meant that all existing arrangements open on that date would have two or three PIPs for the 2015/16 tax year. In other words, for the 2015/16 tax year only, it was possible to have multiple PIPs for the same arrangement ending in the same tax year. Here are some examples to illustrate this:

1)      An arrangement had a PIP running from 1 May to 30 April each year. 

PIP rules prior to 8 July 2015 PIP rules from 8 July 2015 onwards
1 May to 30 April 2015 1 May 2014 to 30 April 2015
1 May 2015 to 30 April 2016 1 May 2015 to 8 July 2015
1 May 2016 to 30 April 2017 and so on 9 July 2015 to 5 April 2016
6 April 2016 to 5 April 2017 and so on

2)      An arrangement had a PIP running from 6 April to 5 April each year.

PIP rules prior to 8 July 2015 PIP rules from 8 July 2015 onwards
6 April 2015 to 5 April 2016 6 April 2015 to 8 July 2015
6 April 2016 to 5 April 2017 and so on 9 July 2015 to 5 April 2016
6 April 2016 to 5 April 2017 and so on

Essentially, the 2015/16 tax year was split into two mini tax years for the purpose of testing against the annual allowance.

‘Mini tax year 1’ ended on 8 July 2015 and HMRC refer to this as the ‘pre-alignment tax year’. This covers savings made to PIPs that ended on or between 6 April 2015 and 8 July 2015.

‘Mini tax year 2’ ran from 9 July 2015 to 5 April 2016 and HMRC refer to this as the ‘post-alignment tax year’. This covers savings made to PIPs that ended on 5 April 2016.

Mini tax year 1 For savings made to PIPs that ended on or between 6 April 2015 and 8 July 2015. £80,000 plus any carry forward from tax years 2012/13, 2013/14 and 2014/15.
Mini tax year 2 For savings made to PIPs that ended on 5 April 2016.

Where an individual was a member of a registered pension scheme in the period covered by mini tax year 1, a maximum of £40,000 of any unused annual allowance from 'mini tax year 1' could have been carried forward into 'mini tax year 2'.

Where an individual had pension savings in PIPs ending in mini tax year 2, but was not a member of a registered pension scheme at any time in the period 6 April 2015 to 8 July 2015, there was an annual allowance for 'mini tax year 2' of £40,000.

In both scenarios, any remaining carry forward from tax years 2012/13, 2013/14 and 2014/15 could also have been used. For mini tax year 2, this was on the proviso that any carry forward amounts hadn't already been used up in mini tax year 1.

For any PIPs that ended in the period from 6 April 2015 to 8 July 2015, there was an £80,000 annual allowance. The annual allowance for the period from 9 July 2015 to 5 April 2016 was nil but up to £40,000 of any unused annual allowance from the period up to 8 July 2015 could have been added to this. Here’s some examples:

Contributions paid for PIPs ending in the period from 6 April 2015 to 8 July 2015 inclusive Contributions that could have been paid from 9 July 2015 to 5 April 2016 inclusive without a charge applying Total possible contributions free from the annual allowance charge for 2015/16
£80,000 £0 £80,000
£61,000 £19,000 £80,000
£40,000 £40,000 £80,000
£17,000 £40,000 £57,000
£0 £40,000 £40,000

These examples do not include any use of carry forward amounts available from tax years 2012/13, 2013/14 and 2014/15 and also assume that the money purchase annual allowance restriction did not apply. 

If someone set up a new pension arrangement in the period 9 July 2015 to 5 April 2016 but was not a member of a registered pension scheme at any time in the period from 6 April 2015 to 8 July 2015, then that individual had a £40,000 annual allowance for the period from 9 July 2015 to 5 April 2016.

There are special rules for the 2015/16 tax year where this is a carry forward year. Effectively, carry forward is available in line with the following:

Current tax year Carry forward years and maximum amounts
2016/17 2013/14 (£50,000), 2014/15 (£40,000) and mini tax year 1 (£40,000).
2017/18 2014/15 (£40,000), mini tax year 1 (£40,000) and 2016/17 (£40,000).
2018/19 Mini tax year 1 (£40,000), 2016/17 (£40,000) and 2017/18 (£40,000).

The annual allowance for the current tax year must be used first before carry forward becomes available. These examples assume that the taper provisions do not apply. More information on carry forward, including example calculations, can be found in our FAQs titled ‘Carry forward’ and ‘Carry forward – worked examples’. 

Similar rules also applied to anyone who was subject to the money purchase annual allowance (MPAA) through having flexibly accessed pension benefits from 6 April 2015 onwards.

If the flexible access took place in mini tax year 1, then the MPAA for savings made in the period from 6 April 2015 to 8 July 2015 was £20,000 and the alternative annual allowance (for savings to defined benefit schemes) for the same period was £60,000. For mini tax year 2, the MPAA limit for savings made in the period from 9 July 2015 to 5 April 2016 was a maximum of £10,000 of any unused annual allowance carried forward from mini tax year 1. The limit for the alternative annual allowance was a maximum of £30,000 of any unused annual allowance carried forward from mini tax year 1.

If flexible access of benefits took place in mini tax year 2, then the MPAA for savings made in the period from 9 July 2015 to 5 April 2016 was £10,000 and the alternative annual allowance limit for the same period was up to £30,000.

For money purchase arrangements, the pension input amount for mini tax year 1 was the total of all the contributions paid to PIPs ending in the period from 6 April 2015 to 8 July 2015 inclusive. For mini tax year 2, it was the total of the contributions paid in the period running from 9 July 2015 to 5 April 2016 inclusive.

For defined benefit arrangements, one total pension input amount had to be calculated for all PIPs ending in the 2015/16 tax year. The pension input amounts for each mini tax year were then a proportion of the total amount. 

An annual allowance charge could have arisen from either mini tax year 1 or mini tax year 2. If a charge arises for both mini tax years, then these should not be reported separately. Any charge that arises for the 2015/16 tax year should be reported by an individual in their 2015/16 self-assessment tax return as normal.

There were no additional reporting requirements introduced for scheme administrators even though the 2015/16 tax year was treated as a transitional year.  So, pension savings statements had to be provided where required to scheme members on or before 6 October 2016 for the 2015/16 tax year. Scheme administrators need to be able to split the contributions for the 2015/16 tax year into the various different PIPs that apply for each scheme member.  

Pensions Technical Services