Suffolk Life 

Two out of five IFAs can't calculate pension tax allowance

Two out of five IFAs can't calculate pension tax allowance

Eight out of 10 (84 per cent) of advisers having had significant issues with the new annual allowance tapering rules, according to a survey by Suffolk Life.

Since 6 April 2016, individuals who have taxable income for a tax year of greater than £150,000 will have their annual allowance for that tax year restricted.

It will be reduced, so that for every £2 of income they have over £150,000, their annual allowance is reduced by £1. Any resulting reduced annual allowance is rounded down to the nearest whole pound.

The maximum reduction will be £30,000, so anyone with income of £210,000 or more will have an annual allowance of £10,000.

High income individuals caught by the restriction may therefore have to reduce the contributions paid by them and/or their employers or suffer an annual allowance charge.

However a Suffolk Life’s survey of 175 advisers revealed the majority were unable to accurately calculate their clients’ threshold and adjusted incomes.

Two out of five (41 per cent) advisers were only able to calculate these for some clients and 43 per cent admitted to the Sipp provider they were unable to complete the calculation for all or most clients. 

Steve Carlson, chartered financial planner at Carlson Wealth Management, based in Caerphilly, said calculating a client’s taxable income before the end of the tax year is extremely difficult where bonuses or share options are granted at the end of the tax year, and impossible for self- employed clients whose year end runs in line with the tax year as their accounts will not have been done.

He said a better solution would be to keep the tapering calculation, but the current year annual allowance would be calculated on the previous year’s earnings.

Mr Carlson said: "That would solve nearly all of the problems.” 

Scott Gallacher, director of Leicester-based IFA Rowley Turton, agreed that for self-employed or shareholding directors in particular it can be difficult to be entirely certain of their income until the very end of the tax year.

He said this therefore gives advisers no time to calculate the relevant figures and make sure these clients fully utilise their allowances.

Mr Gallacher said: “Perhaps it would be helpful if contributions could be made from the 6 to 30 April, when the clients income is then know, but backdated to the 5 April for contribution purposes?”

James Wood, senior financial adviser at HFB Financial Planning Ltd, said the new tapering rules had affected a number of his clients and in some cases, led to them pursuing other tax relief avenues such as enterprise investment schemes and venture capital trusts.

He said the issue comes with the retrospective nature of the calculation.

Mr Wood said: "An example of this is a client who receives a basic salary approaching the threshold income of £110,000 and who has been historically awarded annual bonuses of between £10,000 and £90,000 depending on company performance.

"This award figure is not known until close to the tax year end and so, to avoid any risks, he has chosen to reduce total pension contributions down to £10,000 meaning he also misses out on some matched employer contributions.

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