Why advisers must get pension savings statements

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      Why advisers must get pension savings statements

      The statement will contain details of the client’s total contributions to the provider’s scheme for the 2014 to 2015 tax year, and their contributions (if any) for the three preceding years.

      To understand the implications of a pension savings statement, it is important to know why they are issued and what information needs to go into them.

      Why are statements issued?

      The purpose of a pension savings statement is to help an individual work out if they have exceeded the annual allowance, and might therefore be liable to an annual allowance tax charge.

      A scheme administrator is required by HMRC to issue a pension savings statement if an individual’s contributions are more than the annual allowance in any pension input period.

      For those who are subject to the money purchase rules, because they have accessed their pension benefits flexibly (using flexi-access drawdown or having taken an uncrystallised funds pension lump sum), a statement will be issued if their money purchase contributions exceed £10,000 in any input period.

      Only contributions paid into the provider’s own pension scheme are taken into account.

      The administrator will not have to gather details of the individual’s contributions in other pension schemes to decide whether a statement has to be issued.

      This means that someone might exceed the annual allowance by paying contributions to a number of pension schemes, but without exceeding the allowance under any individual scheme, and will not automatically receive a statement.

      For example, someone could pay £20,000 to three different pension schemes, for a total of £60,000.

      Assuming they are not subject to the money purchase rules, they would not get a pension savings statement from any of their pension providers, even though their contributions exceeded the annual allowance.

      The effect of carry forward – whereby an individual can offset their unused annual allowance from up to three previous tax years against any excess contributions – is also not taken into consideration when determining whether a statement should be issued.

      So someone might receive a statement even though they will not be liable for an annual allowance tax charge, by virtue of having sufficient unused allowance from previous tax years.

      The scheme administrator has up to six months following the end of the tax year in which the relevant input period ends to issue the statement.

      So the latest a statement can be issued, if it is required to be issued automatically, is the 6 October, immediately following the tax year end.

      The statement will detail the pension input amount for the tax year in question, together with the input amounts for the preceding three tax years, and confirmation of what the annual allowance was in those tax years.

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