PTM053100 - Annual allowance: pension input amounts: valuing for different types of arrangement
Glossary PTM000001
General
Transitional rules
Money purchase annual allowance
How pension input amounts are calculated
Section 229 to 237ZA Finance Act 2004
General
For any type of arrangement pension savings that are measured against the annual allowance are worked out by reference to an increase in those pension savings that occurs over a period of time, called a pension input period. PTM052000 has more details about pension input periods.
The amount of any increase in pension savings that occurs during a pension input period is called the pension input amount.
An individual might have pension savings in more than one arrangement each with its own pension input amount for a pension input period. Prior to the tax year 2016 to 2017, the pension input period for each arrangement could be different. For tax year 2016 to 2017 onwards all pension input periods are aligned to the tax year.
Each tax year the individual must add together all pension input amounts for pension input periods that end in that tax year. That total is called the total pension input amount for the tax year. The total pension input amount is measured against the individual’s annual allowance for the tax year. Any portion of the total pension input amount over the individual’s annual allowance is subject to the annual allowance charge.
Transitional rules
There are transitional rules for calculating total pension input amounts for tax year 2015 to 2016 (PTM058000 has more details).
There were also transitional rules for calculating total pension input amounts for pension input periods ending in tax year 2011 to 2012. see the Registered Pension Schemes Manual on the National Archives website.
Money purchase annual allowance
From tax year 2015 to 2016 onwards, individuals who flexibly access a money purchase arrangement will have to test their total pension input amounts against both:
- the annual allowance (as described in the General section above)
- the money purchase annual allowance.
Such individuals will test their total pension input amount for the tax year against the annual allowance to establish what portion of it (if any) is subject to the annual allowance charge (‘chargeable amount 1’).
Also, such individuals will have to add together all post-flexible access ‘money-purchase inputs’ for pension input periods that end in the tax year to establish whether they exceed the money purchase annual allowance.
If the post-flexible access ‘money-purchase inputs’ do not exceed the money purchase annual allowance (or there are no such inputs), chargeable amount 1 will apply.
If the individual’s post-flexible access ‘money-purchase inputs’ do exceed the money purchase annual allowance any ‘other inputs’ for pension input periods ending in the tax year that the individual has are tested against the alternative annual allowance. Any portion of the ‘other inputs’ over the ‘alternative’ annual allowance are added to the portion of the ‘money-purchase inputs’ that exceeded the money purchase annual allowance to establish a chargeable amount (‘chargeable amount 2’).
Chargeable amount 2 is subject to the annual allowance charge if it exceeds chargeable amount 1. Otherwise, chargeable amount 1 (if any) is subject to the annual allowance charge.
Transitional rules apply to the money purchase annual allowance for tax year 2015 to 2016.
For tax year 2016 to 2017 the money purchase annual allowance is £10,000.
For tax years 2017-18 to 2022-23, the money purchase annual allowance is £4,000.
For tax year 2023-24 onwards the money purchase annual allowance is £10,000.
How pension input amounts are calculated
There is a set way to determine whether there is an increase in an individual’s pension savings in order to calculate the total pension input amount for a tax year. The way the increase is determined depends on the type of arrangement.
The same set way applies for individuals who, due to flexibly accessing a money purchase arrangement, must carry out a comparison of the chargeable amounts on their inputs tested against both:
- the annual allowance
- the money purchase annual allowance and the alternative annual allowance.
The post-flexible access ‘money-purchase inputs’ and ‘other inputs’ are found from the total pension input amount.
The following show how the increase in pension savings is calculated in each type of arrangement:
PTM053200 for pension savings under an other money purchase arrangement
PTM053300 for pension savings under a defined benefits arrangement
PTM053400 for pension savings under a cash balance arrangement
PTM053500 for pension savings under a hybrid arrangement
PTM058050 for transitional rules for tax year 2015 to 2016
PTM023100 for more details about the meaning of an arrangement
PTM056500 for more details about the application of the annual allowance or money purchase annual allowance.