CAN I just kick off 2015 by wishing you all a healthy and prosperous year. In my first article I’d like to cover the subject of carry forward of pension allowance. Apologies for this being a little more technical than usual but just get in touch if you hae any questions.

All pension contributions paid to money purchase pension schemes, including employer or thir-party contributions, count towards the individual’s annual allowance.

All personal and third-party contributions are limited for tax relief purposes to 100 per cent of relevant UK earnings, whereas employer contributions are not restricted in this way.

Example 1: In a money purchase scheme, if an individual earns £25000pa, they may make pension contributions of up to this amount, including the tax relief granted on those contributions. An employer may pay a further amount of up to £15000pa without an annual allowance charge being incurred. (If there is any unused annual allowance to carry forward a higher contribution may be paid).

Example 2: With regard to final salary (defined benefit) schemes, the amount of annual allowance used up is not based on the amount of contributions paid by the member and the employer. Instead, it is based on the increase in the capital value of the benefit being accrued over the year. This is called the “pension input amount”. If a member is earning £50,000, in a scheme that gives them 1/60th for each year of service, after 10 years they will have an accrued pension of £8333.33 pa. This is multiplied by 16 to give the capital value and then increased by the increase in the CPI over the year to the previous September (say, 2.2 per cent), giving £136,266.61.This is called the opening value. The following year, they earn £55,000 and will have completed 11 years’ service, so their accrued pension will then be £10,083.33 pa. Multiply this by 16 = £161,333.28. There is no CPI increase to factor in. This is called the closing value. To obtain the pension input amount, which is the amount that counts towards the member’s annual allowance, subtract the closing value from the opening value ie £161,333.28 - £136,266.61 = £25,066.67 Key point: The best way to find out the pension input amount for a final salary scheme is to request a pensions savings statement from the pension scheme administrator. They are obliged to provide one, normally within three months of the request.

This information is required, together with the pension input amounts for the previous three pension input periods, to calculate any potential unused annual allowance to carry forward.

Given that pension savings statements can take up to three months to obtain, for those clients wishing to maximise their pension contributions and utilise carry forward, these should be requested from the pension scheme trustees now.

This will ensure that the pension contributions can be maximised before the end of the tax year and before the 2011/12 tax year (potentially £50,000) is lost from a carry forward calculation.

You can get in touch with Billy by calling his freephone number: 0800 321 3508. Or you can reach him via the website, www.williamgeorge.info, where there is a contact page, or email him directly: w.george@ifswm.com.

CAN I just kick off 2015 by wishing you all a healthy and prosperous year. In my first article I’d like to cover the subject of carry forward of pension allowance. Apologies for this being a little more technical than usual but just get in touch if you hae any questions.

All pension contributions paid to money purchase pension schemes, including employer or thir-party contributions, count towards the individual’s annual allowance.

All personal and third-party contributions are limited for tax relief purposes to 100 per cent of relevant UK earnings, whereas employer contributions are not restricted in this way.

Example 1: In a money purchase scheme, if an individual earns £25000pa, they may make pension contributions of up to this amount, including the tax relief granted on those contributions. An employer may pay a further amount of up to £15000pa without an annual allowance charge being incurred. (If there is any unused annual allowance to carry forward a higher contribution may be paid).

Example 2: With regard to final salary (defined benefit) schemes, the amount of annual allowance used up is not based on the amount of contributions paid by the member and the employer. Instead, it is based on the increase in the capital value of the benefit being accrued over the year. This is called the “pension input amount”. If a member is earning £50,000, in a scheme that gives them 1/60th for each year of service, after 10 years they will have an accrued pension of £8333.33 pa. This is multiplied by 16 to give the capital value and then increased by the increase in the CPI over the year to the previous September (say, 2.2 per cent), giving £136,266.61.This is called the opening value. The following year, they earn £55,000 and will have completed 11 years’ service, so their accrued pension will then be £10,083.33 pa. Multiply this by 16 = £161,333.28. There is no CPI increase to factor in. This is called the closing value. To obtain the pension input amount, which is the amount that counts towards the member’s annual allowance, subtract the closing value from the opening value ie £161,333.28 - £136,266.61 = £25,066.67 Key point: The best way to find out the pension input amount for a final salary scheme is to request a pensions savings statement from the pension scheme administrator. They are obliged to provide one, normally within three months of the request.

This information is required, together with the pension input amounts for the previous three pension input periods, to calculate any potential unused annual allowance to carry forward.

Given that pension savings statements can take up to three months to obtain, for those clients wishing to maximise their pension contributions and utilise carry forward, these should be requested from the pension scheme trustees now.

This will ensure that the pension contributions can be maximised before the end of the tax year and before the 2011/12 tax year (potentially £50,000) is lost from a carry forward calculation.

You can get in touch with Billy by calling his freephone number: 0800 321 3508. Or you can reach him via the website, www.williamgeorge.info, where there is a contact page, or email him directly: w.george@ifswm.com.