Summer Budget 2015: Alignment of pension input periods

A pension input period is the period over which pension savings under an arrangement are measured. It may not be the same as the tax year, and can be less than a year.

Pension input periods (PIPs) will be aligned with the tax year with effect from 6 April 2016, so that the proposed restriction to the annual allowance for individuals with income over £150,000 can work as intended.

There will be transitional rules whereby all PIPs open on 8 July 2015 will end on that date, followed by a short PIP from 9 July 2015 to 5 April 2016 for the purposes of these arrangements.

The tax year 2015/16 will be split into two mini tax years for the purpose of the annual allowance, the pre-alignment tax year (6 April 2015 to 8 July 2015) and the post-alignment tax year (9 July 2015 to 5 April 2016).

The annual allowance for PIPs ending in the pre-alignment tax year is £80,000, plus any carry forward relief.

The annual allowance for savings made during the post-alignment tax year is the proportion of the £80,000 that has not been used in the pre-alignment tax year, subject to a maximum of £40,000, plus any remaining carry forward from 2012/13, 2013/14 or 2014/15.

Anyone who was not a member of a registered pension scheme during the pre-alignment tax year will have an annual allowance of £40,000 for the post-alignment tax year.

The £80,000 allowance shows that the government do not wish to penalise individuals who had already planned their pension contributions on the basis of having more than one PIP in 2015/16.

The transitional rules will require special attention to ensure that the relief is correctly computed. For future tax years, income tax relief for pension contributions will be simplified. Planning in respect of PIPs will not be possible from 6 April 2016 in view of the alignment with the tax year.