Annual Pension Allowance Statements Issued

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As expected, the NHS Pensions Department have begun issuing notices to scheme members who’s 2013/14 pension inputs exceeded the £50,000 Annual Allowance. Those who have breached the limits are potentially liable to pay tax at their marginal rate. It is though possible that a member could utilise prior period unused pension allowance in order to reduce or remove the excess contribution therefore reducing or eliminating the tax charge. The use of prior period unused pension allowance is commonly referred to as the ‘carry forward’ option.

Example:

Dr Jones received correspondence stating that her pension input for 2013/14 was £62,200, £12,200 in excess of the £50,000 Annual Pension Allowance. Dr Jones had no other pension savings to consider when calcualting her total excess contribution amount. The excess may be taxed at Dr Jones’ marginal rate of tax, 40%. However, on further inspection, Dr Jones became aware that for each of  the past three pension periods, her inputs were only £15,000 per annum leaving £35,000 unused allowance per period. In order to eliminate the 2013/14 tax charge, Dr Jones elects to carry forward £12,200 of unused allowance to cancel out the 2013/14 excess inputs. The tax charge is eliminated.

Please feel free to contact Matthew Sharpe on 07587 878 283 if you would like to discuss this matter further.