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Video looking at Pension Transfers

Watch the latest CII accredited MasterClass from our Financial Planning and TechTalk team and add to your CPD learning. In this recorded MasterClass from 19 February 2019 we share our technical guidance focusing on end of year pension planning. 

By the end of this masterclass you will be able to explain;

  • The restrictions to pension tax relief imposed by the annual allowance
  • How the restricted annual allowances and carry forward affect maximum funding
  • What this means for end of tax year pension contributions.
  • Company: Lloyds Banking Group

    Conference Title: End of year pension planning

    Date: Tuesday, 19th February 2019

    Conference Time: 10:30 AM UK

    Operator: Good day and welcome to the annual allowance tax relief and carry forward conference call.  Today's conference is being recorded.  At this time, I would like to turn the conference over to Paul Rutkowski.  Please go ahead, sir.

    Paul Rutkowski: Thank you very much.  Good morning everybody and welcome to the Scottish Widows CII‑accredited Techtalk masterclass on tax year end pension planning.  Today I'm joined by Bernadette Lewis and Tom Coughlan from the Scottish Widows Financial Planning team, who'll shortly be taking us through the presentation.  At the conclusion of the presentation, you will hear where you can find and access further information covered in today's slides. 

    As you'll be aware, the objective of these presentations is to provide you with valuable insights into topical areas of pension planning.  As we head towards the end of 2018/2019 fiscal year, many clients will be focused on maximising their pension tax allowances, so a detailed look at how the many different limits and restrictions work is an appropriate topic to cover.

    The tax advantages of pensions are amongst the best available to clients.  The current high rates of tax relief available on contributions give clients an excellent incentive to save for their retirement.  The present system, however, may not last long into the future.  There have been repeated calls from politicians and think tanks to reform tax relief, which, on balance, is likely to diminish the extent of tax benefits available and perhaps refocus them towards basic rate and non‑tax payers. 

    So while the current system remains available, clients should, within the limits imposed by their financial means, take full advantage. 

    The tax incentives, however, are only one side of the story.  The other is the need to avoid contribution refunds and tax charges on over‑contributions.  To ensure the maximum tax benefits are achieved without incurring unwanted charges, advisors need to take account of a wide range of information, such as earnings, the annual allowance and carry forward, as well as the client's existing and past contributions, including those paid by them and their employer to any workplace pensions that they are a member of.

    There are also the more complex scenarios, where clients might be better off paying contributions above the pension limits and meeting the tax charges themselves, or direct from their pension fund.  To help advisors deal with this and other complex areas, we have a range of Techtalk articles on all related topics, accredited CPD guides and a number of tax calculators, which can all be accessed via the Scottish Widows advisor website.

    Today's presentation will last for about 40 minutes, following which there will be time to answer any of the questions that you have raised.  Full details of how you can ask questions will again be given out at the end but as we said in the introduction, you can ask online as you go along.  The presentation will be recorded and available for subsequent review via the Scottish Widows advisor website and CPD certificates will also be issued for those who are attending live.

    I would like to now hand the call over to Tom to continue.

    Tom Coughlan:  Thank you Paul, good morning everyone.  As we approach the end of the 2018/2019 tax year, as Paul mentioned, clients who can make further contributions, so within their financial means, should do so and do so before we get to 6th April.  This is likely to be limited by their annual allowance, or their earnings and it's important that the requirements for the particular type of contribution are met to ensure that the contributions are paid this side of the tax year end and also the requirements for the scheme in question are also noted as well.

    So, to help you with that, we're going to go through a number of topics today.  So we'll look at tax relief on personal contributions.  We'll look at the standard £40,000 annual allowance.  Bernadette is then going to go through the restricted annual allowances, the tapered annual allowance and the £4,000 MPAA.  Tax year end planning wouldn't be complete without looking at carry forward, so we're going to have a look at that as well and then we'll look at some other, more miscellaneous, aspects. 

    And then, at the end, we'll deal with any questions that you've submitted over the webpage throughout the presentation.

    This is a CII‑accredited masterclass, so we'll just note the objectives for today's session.  So hopefully by the end of this masterclass, you'll be able to explain the restrictions to pensions tax relief imposed by the annual allowances, how the restricted annual allowance and carry forward affects maximum funding calculations and what all of that means for end‑of‑tax‑year pension planning.

    Okay, starting with tax relief, there's a lot of noise at the moment about reforming tax relief, various parliamentary groups and think tanks are continuing to push for reform.  However, the reason this hasn't been done until now is because it's very difficult.  Either you make minor amendments to the annual allowance, so for example just tinker with the annual allowance, the tapered annual allowance, the MPAA etc., or you have to make a wholesale reform of the entire system.

    So, for example, if you just focus on personal tax relief, so you cap tax relief at 30%, or apply a flat rate at 30% for everybody, or you change relief at source or net pay, restrict that just to basic rate relief and if you don't change the employer pension contributions system then all of that can just be side‑stepped with salary sacrifice.  And salary sacrifice isn't available to everybody, so that would be an unfair change to make.  So hence, if the system is to be changed effectively, then the whole system has to be changed.

    So, as it hasn't be, then we still have the exempt–exempt-taxed system, which is highly advantageous to those saving for their retirement.  A common misconception about the system is that the exemption from tax up front provided by tax relief is simply balanced out by the tax that you pay on pension withdrawals.  However, this is rarely the case, for a couple of reasons. 

    First of all, 25% of the fund is paid out of tax‑free cash, so that part of the fund benefits from an exempt-exempt-exempt system, which is unparalleled as far as mainstream savings products go.  And the other reason is that the retirement tax rate is often much lower than that that applies during working life. 

    So, to take a typical example, clients who throughout a portion of their working life are earning £60,000, they are a 40% tax payer and based on current rates, they'll be able to get a 40% tax relief on contributions up to £13,650.  And then you contrast that with their retirement tax rate, it's not uncommon for income to drop by as much as 50%, so you look at that £30,000 draw‑down income. 

    Again, based on current rates, that would mean they would pay 20% on £18,150 of that £30,000 and £11.850, the current personal allowance, would be free of tax. 

    That combination of factors results in an effective tax rate of 12.1% and that doesn't account for tax‑free cash either, so it would be much lower than that.  And that is contrasting to a tax relief rate as high as 40% for that client.

    Okay, that takes us onto the pensions versus ISA comparison.  The Centre for Policy Studies published a recent report, Five Proposals for Savings Reform, and in that they suggest replacing tax relief with a bonus‑style system and to back that up they cite the amount being subscribed to ISAs at the moment versus that being paid to personal pensions.  So the ISA subscription amounts for the most recent year available, 2016/2017, were £61.5 billion whereas the amount paid as personal contributions to personal pensions was just £9.4 billion. 

    However, if you include employer contributions within that as well, that takes the figure up to £24.6 billion but still, it's significantly below the amount being subscribed to ISAs.

    Various reasons are suggested for this.  One is that Generation Y, so those born between 1980 and 2000, are less engaged with pensions than previous generations.  So what are the possible reasons for this?  One is ready access within ISAs is preferred but that isn't necessarily an advantage, as far as retirement planning goes, because ready access means that it probably will be accessed before retirement. 

    Another reason, possibly, is general distrust of pensions.  This is likely fuelled by negative media coverage but that almost exclusively relates to the handful of DB schemes that have got into trouble, rather than anything to do with personal pensions.  So perhaps the key reason is the complexity of pension tax relief.  But irrespective of how complicated it is, it's very easy to show that if you just focus on the tax aspects, pensions come out as superior than ISAs and hopefully the following slide will demonstrate that.

    So this example uses a number of assumptions.  So it's one client looking at two possible approaches to retirement planning, so pension or ISA.  Throughout their working life they earn £55,000 and then, following their retirement at 60, their income drops to £35,000 and the table just tracks the increase in value of a £5,000 net contribution, or ISA subscription, from age 50 to age 60.  The net growth rate is 3% and it ignores inflation. 

    So if we can get the top row, the cost to the client has to be £5,000.  However, the contribution to the scheme would have to be £6,667.  That would be the net contribution.  The gross contribution would be £8,333. 

    However, when they submit their self‑assessment tax return, they get £1,667 returned to them, so their actual cost – the actual cost to them is £5,000 but £8,333 was invested in the pension.  Compound growth over ten years, 3%, takes that figure up to £11,199.  A quarter of that would be available as tax‑free cash, which means that 20% of the tax paid on the full withdrawal there would be £1,679.  So the net amount paid out would be £9.519 and the enhancement compared with the cost to the client of £5,000 is 90.4%, so a significant increase.

    If you do the same for the ISA, so £5,000 subscription, that is the amount invested and after ten years at 3% growth, that goes up to £6,719 and that is the amount paid out.  The enhancement is significant, 34.4%, but it is substantially lower than the amount under the pension.  And that is just keeping everything the same and just comparing the tax incentives of those two products.  However, the fact that income has dropped from £55,000 to £35,000 does favour the pension significantly. 

    So, just for fairness, just to make sure that the comparison is equal, just look at the end result, where the income is kept constant.  The ISA still comes out at 34.4%, because nothing has changed.  However, the pension drops to 56.8%, so even keeping the income the same, which kind of balances out the EET versus TEE system, the pension still comes out significant ahead: 56.8%.  And that is entirely to do with the tax‑free cash that is available.

    Okay, hopefully that just positions where we are with tax relief, so moving on to the tax year‑end planning aspects.  In terms of personal contributions, there are two separate limits that apply.  So we'll deal with them both separately: tax relief first and then the annual allowance.  So the current tax rules allow tax relief personal contributions up to the client's relevant UK earnings in the tax year.  If they have no earnings, or their earnings are below £3,600, then they can pay £3,600 gross to a relief‑at‑source scheme and still get 20% tax relief. 

    So that means different things for different clients.  So clients paid, as relevant tax earnings in the tax year, £1,500.  They can pay a gross contribution of £3,600 to a personal pension and get 20% tax relief.  Client B earns £15,000.  That means they can pay a gross contribution of £15,000 and get 20% tax relief on that.  Client C, who earned £150,000, then the rules allow them to pay £150,000 gross contribution.  They would get full tax relief up front. 

    However, because they've gone over their annual allowance, an annual allowance charge may apply but whether it does or not depends on carry‑forward.  The annual allowance applies separately and is applied to the tax charge at the member's marginal rate for the total contribution above whatever their annual allowance is for the tax year, or tapered annual allowance, plus whatever carry forward is available to them.

    So, continuing with the example of client C, so they paid personal contributions of £150,000 gross, so their employer also added £10,000, so their total contribution, assessed against the annual allowance, would be £160,000.  You would then need to look at their annual allowance plus carry forward and let's just say that was £140,000 that was available, so that means that there would be an excess of £20,000 and that £20,000 excess is added to their income and taxed, depending on which tax band it falls in, which is likely to be 40% or 45% in this example. 

    However, the tax relief on that £150,000 was available up front and then the annual allowance excess charge seeks to recoup some of the tax relief that shouldn't have been granted.  But just to reiterate, they do operate separately.

    And a number of consequences follow from that.  So personal contributions greater than earnings do not attract tax relief in the year, so in order to use carry forward you'll need either sufficient earnings or access to employer pension contributions.  Carry forward is just relating to section two of the annual allowance.  You cannot carry forward unused earnings and as the £3,600 is just a proxy earnings figure, that can't be carried forward either.  So earnings in terms of personal contributions and the £3,600 work on a use‑it‑or‑lose‑it basis.

    Okay, so the tax year end planning opportunity for the annual allowance is simple: use up your relevant UK earnings, so use as much of your annual allowance as you can and use up the maximum available annual allowance plus carry forward, again, where your earnings allow you to do that.  And as I mentioned at the start, I just need to consider the requirements for the particular type of contribution – different types of contributions will have different effective dates. 

    You need to make sure those are met, that the contribution is applied this side of the tax year and not beyond 6th April.

    Okay, moving on to carry forward, so the rules are as follows: so once the current year's annual allowance has been used up, unused annual allowance from the previous three tax years are automatically carried forwards.  There are no self assessment requirements; there's no need to make any application for it.  If the annual allowance is unused in a previous year and you were eligible for carry forward then it is automatically brought forward to this tax year. 

    The eligibility rule is quite straightforward: the member must have been a member of the scheme in the carry‑forward tax year and that applies separately to each year.  So to use all three of the previous years, you must have been a member each of those years and the earliest year is carried forward in preference to subsequent years.

    Just to look at a quick example, so carry‑forward to 2018/2019.  The 2018/2019 year is used up fully by either the standard annual allowance or the tapered annual allowance and then you go back to the earliest of the three previous years to carry forward whatever is available in 2015/2016, then 2016/2017 and then 2017/2018.

    So, just to look at a quick example, so the contribution history for the client is as follows: so £25,000 in 2015/2016; £20,000 in 2016/2017 and £15,000 in 2017/2018.  So, to access carry forward, you've got to fully use this year's annual allowance, £40,000 would be covered by this year's £40,000 annual allowance and then you would go back to the earliest of the three previous years, so in this case 2015/2016 and carry forward is always from a pre‑alignment year – or almost always from the pre‑alignment year – in 2015/2016. 

    And that's reduced by the amount paid in the post‑alignment year, plus the amount paid over £40,000 in the pre‑alignment. 

    So £15,000 can be carried forward from 2015/2016, £20,000 from 2016/2017 and £25,000 from the 2017/2018 figure and a total contribution of £100,000.  But again, you've just got to take note of earnings.  Does the client have £100,000 of earnings?  Or do they have sufficient employer contributions available to them to make use of their annual allowance?

    Okay carry forward, well, the first carry forward is straightforward but carry forward following an earlier carry forward exercise can be a bit more complicated.  Something like the approach shown on this slide can help simplify things.  So you have to look back at previous years and see if there's an annual allowance excess. 

    In 2016/2017 the square highlighted in red there is £100,000; that was a £60,000 excess over their annual allowance for that year, so you've got to look to allocate that to the previous years and take them into account when you do a current carry forward exercise. 

    So that £60,000 excess would have been allocated as follows: the available annual allowance for 2013/2014 of £30,000 would have been carried forward; the £20,000 available in 2014/2015 would have been carried forward; there's only £10,000 left of the excess now and that is available in 2015/2016, so you would have carried £10,000 forward as well.  When you do a carry forward exercise for this year, you just have to take note; actually you almost have to read across each row just to work out what the annual allowance is for that particular year. 

    So the full annual allowance of 2018/2019 is used up first.  Then you have to go back to the earliest of the three previous years.  So in 2015/2016 £25,000 was paid in the post‑alignment year and £10,000 was carried forward to 2016/2017.  That's £35,000 in total.  The annual allowance in 2015/2016 for our carry forward purposes was £40,000, so that leaves £5,000 available. 

    You almost never carry forward from the post‑alignment year.  You wouldn't in this example, so you skip over that.  2016/2017 was fully used by virtue of the previous carry forward exercise, so the only other year available is 2017/2018 and £25,000 is available so the client can pay £70,000 in this year, based on the available annual allowance, which must include any previous carry forward exercises.

    So that's just the principles of how it works.  These types of calculations can get very fiddly, particularly when the numbers aren't nice round numbers like £10,000 and £20,000, so we have our carry forward tool available.  On the new advisor site it is under the tools tab and then pension tools.  The list of calculators that that then brings up – you have the carry forward calculator at the bottom of that list and then when you get to the input screen, it looks something like that. 

    The key column is the input column; it's just a matter of putting in the pension contributions into that. To the left you can select whether the client is eligible for carry forward or not in that particular year and to the right you can put in the tapered annual allowance figures but Bernadette is going to go through that in a second.  And then click calculate and that will do the exercise shown on the previous slide for you.

    Okay, that's the annual allowance and tax year.  I'm now going to hand over to Bernadette to look at the restricted annual allowances.

    Bernadette Lewis: Thank you very much, Tom. 

    Okay, so the first restricted annual allowance is the tapered annual allowance.  This is the complicated one that definitely generates a lot of questions and a lot of advice opportunity and this affects, generally, higher earners.  It comes into play if somebody's total taxable income plus their employer pension funding exceeds £150,000.  If the tapered annual allowance applies, the tapering is on the basis of a £1 reduction in the standard £40,000 annual allowance for every £2 of income in excess of the £150,000 limit, although it can't go down below £10,000. 

    So once somebody's adjusted income, which I'll explain shortly, reaches £210,000, they get the lowest possible tapered annual allowance of £10,000.  It gets complicated because we have to allow for two different income definitions.  The first one is the adjusted income limit, that's the £150,000 limit, which is also used to work out your tapered annual allowance.  In some cases some people will escape the tapered annual allowance because their threshold income doesn't exceed £110,000.  And the legislation is drafted in such a way that there's very limited scope to avoid the tapered annual allowance restrictions. 

    So if I explain adjusted income, which is your £150,000 limit, the starting point is looking at somebody's net taxable income for the tax year.  Now, strictly speaking, this is the outcome of steps one and two of the income tax calculation. 

    So you take all of somebody's taxable income and you deduct their allowable deductions, for most people allowable deductions would be gross contributions to old‑fashioned Section 226 personal pensions, and also personal contributions to occupational pension schemes operating net pay, where the gross contribution is deducted from somebody’s income before their income tax is worked out.  And to that taxable income you add on the value of any employer contribution for the same tax year.

    The other income definition we have to worry about is threshold income.  So threshold income is the £110,000 limit, starting with the same definition of taxable income as for adjusted income, but in this case you are allowed to deduct any contributions that the member makes to a personal pension plan operating relief at source, so that is the contributions that are paid net of basic rate tax.  And when we talk about personal pensions here, that also includes group personal pensions. 

    But as an anti-avoidance provision – if somebody has used a new salary sacrifice opportunity after 9th July 2015 in exchange for pension provision, you have to add back that salary sacrifice.  So you can’t get around tapered annual allowance by giving up salary in exchange for a higher employer contribution, if that’s a new arrangement after 9th July 2015. 

    So if we have a look at an example to show how this might work in practice, we’ll take Neil.  We’ve got a salary of £180,000.  He is in his employer’s occupational pension scheme.  It’s a relatively generous scheme.  His employer is contributing £18,000, 10% of his earnings, and he contributes £9,000, which is 5% of his earnings. 

    So if we start off with his threshold income, that’s based on his net taxable income, which we know is £171,000, because we’re getting a salary of £180,000.  We deduct his net pay contribution, paid gross of £9,000, to get to £171,000.

    For adjusted income, same starting point of £171,000, but now we’ve got to add back the contributions he makes under the net pay arrangement, and also add on his employer contribution.  So he ends up with adjusted income of £198,000.  So his threshold income, is it over £110,000?  Yes it is.  His adjusted income, is it over £150,000?  Yes it is.  So Neil, we know, is caught by the tapered annual allowance.

    So we can now work out what his tapered annual allowance will be, using the fact he’s over £150,000, he’s over £110,000, and his pension input is £27,000.  So we need his adjusted income to work out his tapered annual allowance.  From his adjusted income of £198,000 we deduct £150,000, the threshold for tapering.  That gives his excess income over £150,000 of £48,000.  We divide that by two because it’s a one-for-two tapering, and we deduct £24,000 from £40,000 to arrive at Neil having a tapered annual allowance of just £16,000.

    We know that his overall pension input amount was £27,000, so his excess for this tax year is £11,000.  And Neil is in the unfortunate position that we’re now finding a lot of people are in: they’ve used up all their available carry forward since the tapered annual allowance was introduced, so he really does have an excess of £11,000. 

    So it is a fact that he is in the additional rate income tax bracket.  His annual allowance charge is going to be 45% and he is going to be paying £4,950, clawing back some of the tax relief that he has benefited from.

    So there are two ways that you can pay the annual allowance charge.  It’s either payable by the member themselves via Self-Assessment; or in some cases the scheme will pay the charge on behalf of the member.  For scheme pays to be obligatory you have to cross two barriers, firstly, the annual allowance charge has to be over £2,000, which does apply in this case, and also the pension savings to the scheme in question have got to be over £40,000, which isn’t applicable in this case. 

    So Neil can ask his scheme if they would operate scheme pays, but the scheme does not have to do that.

    So there is one opportunity to get out of the tapered annual allowance, and that is where it is possible for some people to make a member contribution to a relief at source scheme – so that will often be in a personal pension plan, possibly a group personal pension plan, and reclaim their full £40,000 annual allowance. 

    If you are using this strategy, really your overall aim should be to try to get your threshold income not just down to £110,000, but below £110,000, because we all know that clients have a tendency to underestimate their income, and it would be not a great idea to think you’ve reclaimed their full annual allowance, and it turns out they forgot that £1,000 of taxable interest, and the whole exercise falls apart.

    So if we start off with an example of a client where they’re earning £180,000, employer is contributing £30,000, their adjusted income is therefore £210,000, they have got a fully tapered annual allowance of just £10,000.

    But it’s possible for that person to take their £180,000 income and reduce it to £110,000 or less of threshold income by making a personal pension contribution on a relief at source basis of at least £70,000.  And if they can do that, and make sure that they really do get their threshold income at £110,000 or below, they get back to the full £40,000 annual allowance. 

    Now, this can only work if they have actually got some carry forward available, and for this particular example they would need at least £60,000 carry forward available from the three previous tax years, because if they get their £40,000 standard annual allowance for 2018/19, their £30,000 employer contribution uses up the first £30,000 of that, leaving £10,000 available. 

    So they also need £60,000 to carry forward to be able to make a personal pension contribution of at least £70,000.  But we do find clients that this does work for, so it is worth investigating as we come up to the end of the tax year, when you’ve got a better idea of what their pension input will be for the year, and what their taxable income will be for the year.

    Within the carry forward tool mentioned earlier, which Tom explained how to access, you’re able to input the information that you need to do the tapered annual allowance.  So towards the right-hand side of the calculator, you’re asked to input adjusted income and say whether threshold income is above or below £110,000.  There is also a subsidiary tool within the carry forward calculator called the tapered annual allowance tool.  And if you click on that you can access a subsidiary tool, which allows you to calculate the tapered annual allowance.  

    On next year’s version there will be a macro, allowing you to automatically input that into the carry forward calculator.

    So the other restriction on the annual allowance is the money purchase annual allowance, which is now £4,000, having originally been introduced at £10,000.  This is triggered when somebody uses the pensions freedom to access any flexible income from their pension.  Typically either flexi‑access drawdown income – taking just the tax-free cash alone doesn’t trigger the money purchase annual allowance – or withdrawing an uncrystallised funds pension lump sum.  If somebody has triggered the money purchase annual allowance, they can’t use carry forward for any money purchase contributions.

     So if they want to keep building up their pension, their end of tax year planning opportunity, if they have got enough earnings, is to pay £4,000 gross each tax year.  Or if they haven’t got any relevant UK earnings, they can still contribute £3,600 gross.  And because carry forward can’t be used with the money purchase annual allowance, this is another of those occasions where you’ve got a use-it-or-lose-it situation at the end of each tax year.

    Pension contributions can also give people additional benefits over and above just the tax relief in three particular situations, and this is because adjusted net income is used when working out if somebody’s annual allowance starts getting clawed back.  Tapering applies once adjusted net income reaches £100,000. 

    The last couple of years we have had the personal savings allowance set against interest income, which is £1,000 for basic rate tax payers, £500 for higher rate tax payers.  So if you can get adjusted net income below the higher rate threshold that can benefit people.

    And we have also got the situation with child benefit claw back, where one person in a couple is earning over £50,000, with complete claw back once that person’s income reaches £60,000. 

    And because pension contributions made by the member – whether they are on a net pay basis or on a relief at source basis – reduce adjusted net income, member pension contributions in any of those three circumstances not only gives people tax relief, but can also claw back personal allowance, give them extra personal savings allowance, or give them the financial benefit of genuinely receiving their child benefit.  So all cases where you can really demonstrate adding value due to the complexities of our income tax system.

    Another possible opportunity: at this time of year we know a lot of people being paid bonuses.  For some people, they will have highly fluctuating levels of bonuses, so they may well find that in a particular tax year, an extra large bonus takes them into the higher rate tax bracket. 

    It’s an ideal opportunity to make a pension contribution in the same tax year, get their taxable income back down below the basic rate.  They have got extra money to pay a contribution, and they are benefiting from 40% tax relief when they are normally a 20% tax payer.

    Another opportunity that can apply to some people – perhaps receiving a mix of relevant UK earnings and dividend income, with enough dividend income to be paying the higher rate of tax on a slice of that dividend income after allowing for the dividend allowance.  If you are paying the higher rate of tax on dividends, you’re paying that at 32½%, whereas if those same dividends were in the basic rate band you would be paying 7½%. 

    So in our example we’ve got somebody who has £5,000 of dividends in the higher rate band, in the first part of the example. Assuming they have got enough relevant UK earnings to pay a gross contribution of £5,000, if they do that to a relief at source scheme, they will actually pay £4,000 and get £1,000 tax relief up front. 

    Then when they do their tax reclaim, because of the difference in dividend tax, their additional claim would be worth £1,250 instead of the normal £1,000 extra.  So that can be another example of understanding the tax rules and really applying them to benefit clients.

    So shortly we will be picking up the questions that you have raised during the session so far.  So as a quick reminder, if you haven’t submitted a question, please now go ahead via the online service.  While you’re just getting ready to do that, I’ll talk to you about some of the other material that is available to support today’s session, and also any other queries you might have.

    On the Scottish Widows Advisor Extranet there is an expertise tab, and within that you can access Techtalk.  The most recent January edition does have a specific article covering tax year-end planning opportunities.  And there is also an option on that page to sign up if you would like to receive hard copies of Techtalk.

    Within the expertise tab there is also, as Thomas mentioned, access to tools.  There is also a whole lot of other retirement planning support material, particularly our recent CPD guides, which are now available, and that’s an ever-expanding resource.  And also you can access via the search facility in knowledge library our archive of Techtalk articles, covering a whole range of financial planning and specifically retirement planning opportunities.

    And if you are enjoying today’s Masterclass session, via the expertise tab you can also go into continuing professional development and access our archive of past masterclass courses, which are available as the slides, a recording of the original presentation, and a written up version of the presentation. I’ll now hand over to Tom, who is going to start looking at some questions with you.

    Tom Coughlan:  Okay, thank you Bernadette.  Yes, a couple of questions have come in, a couple of questions about getting hold of slides.  The content from this presentation will be on our website in a few days.  You will be able to view that and the recording there.  So we’ll deal with some of the technical questions now.

    First question, you said you never carry forward from the post-alignment year, why is that?  I’m sorry, that was a slight error on my part: you almost always carry forward from the pre-alignment year, but the only time you carry forward from the post-alignment year is where the client was a member of a scheme in the post-alignment year but not the pre-alignment year.  That’s quite an unusual situation, so for the vast majority of cases, the carry forward will be from the pre-alignment year, and that is limited to £40,000. 

    However it is reduced by contributions above £40,000 in the pre-alignment year, and all the contributions paid in the post-alignment year.  So the carry forward is from the pre-alignment year, but it’s almost treated as though it’s from the post-alignment.  We have some more explanations of that in our CPD guide on the tax aspects of pension funding.

    A question for Bernadette: do you carry forward the tapered annual allowance from previous years or the standard annual allowance?

    Bernadette Lewis: We carry forward the tapered annual allowance.  Once the restriction applies to somebody it becomes a permanent restriction, so this is why people are now being caught, as the tapered annual allowance rumbles ever onwards. For the first couple of years a lot of people did have carry forward available from when they could benefit from the £40,000 annual allowance. 

    People who have been caught by the tapered annual allowance generally used up their entire annual allowance in the taper year, and they have got nothing to carry forward from that year.  It’s getting harder and harder to help these clients now.

    Tom Coughlan: Absolutely.  Okay, thank you Bernadette.  Another question.  I’ll take this one here for a client who had his own limited company and has not made pension contributions for the last five years.  Can the limited company make any carry forward?  The answer is yes, provided the client was eligible for carry forward in the previous three years.  So they must have been a member of some registered scheme in the previous three years, and then they can carry forward from those years. 

    And most types of schemes qualify for that purpose, so it could be an old paid-up plan, it could be an AVC, it could be a pension under a final salary scheme: they all confirm membership of a registered scheme, and they make carry forward available.  However, the separate question is, does the company get corporation tax relief from that contribution?  That’s a separate issue, and that’s down to the wholly and exclusively test, so the accountant will be able to confirm.

    Another question for Bernadette I think.  How do you report an annual allowance excess on Self Assessment where you have used carry forward?

    Bernadette Lewis: Yes, so if somebody has used carry forward and still has an annual allowance excess, then the amount you actually have to report on your Self-Assessment tax return is just the excess over your available annual allowance.  But if you want to explain how you reached that answer you can use the additional information pages of the Self-Assessment tax return to show your workings. 

    And I think the key thing is that it’s important for people to keep records of their contribution when they have relied on carry forward, so that if HMRC does ever ask a question you can go back and show that you had sufficient carry forward in the years when you did not declare an annual allowance excess.

    Tom Coughlan:  Excellent, okay, thank you Bernadette.  We do have a couple more questions, but we’re running low on time, so if we didn’t get round to answering your question we will email you directly at some point today.  Okay, that is all from us.  I will hand back to Paul for closing comments now.

    Paul Rutkowski: Great, thanks very much Tom and Bernadette.  There’s no doubt that pension funding is a complex topic, but as we’ve seen throughout the presentation today, your clients will only benefit from your support.  Hopefully this presentation has helped to consolidate your knowledge and remind you of some of the key aspects that you will need to consider before the end of the tax year. 

    If you would like further information on any of the topics covered, in the first instance people speak to your Scottish Widows contact, or you can visit the Scottish Widows advisor website to access our technical resources.

    As with our previous masterclasses, a recording will be placed on the advisor website for further review in the next few days. CPD certificates will also be issues following today’s presentation, for those that have attended live.  My thanks once again to Bernadette and Tom for taking us through the slides.  Thank you for joining, and thank you for the questions you have raised.  As Tom mentioned, for those that we didn’t get to today, we will answer directly to you.  And that concludes today’s presentation, so thank you very much.

    Operator: Good, we will conclude today’s conference call.  Thank you all for your participation.  You may now disconnect.


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