In an article published yesterday (September 24) on the PFS website, authored by Technical Connection, financial advisers were warned about the importance of pension savings statements, which are used to accurately calculate the inputs and any annual allowance charges incurred by clients in a defined benefit scheme.
“Where a pension statement is received this will often trigger a need for advice as clients will be keen to know what the input means and how any tax charge will apply,” it stated.
Pensions saving statements are automatically provided where the individual’s pension input into the scheme exceeds £40,000 or where the money purchase annual allowance applies and money purchase input exceeds £4,000.
Schemes have until October 6 to provide these documents to their members.
But financial advisers should note that the requirements for an automatic statement often won’t include those who are subject to the tapered annual allowance.
The client might have different sources of income which puts them at risk of a tax bill, so they should ensure that they request a statement from all their DB schemes, “as soon as possible”, Technical Connection stated.
Schemes have three months from the date of the request to provide the statement or until the same October 6 deadline if that is later.
Introduced in 2016, the tapered annual allowance gradually reduces the allowance for those on high incomes, meaning they are more likely to suffer an annual tax charge on contributions and a lifetime allowance tax charge on their benefits.
The taper means that for every £2 of adjusted income above £150,000 a year, £1 of annual allowance will be lost.
Once the pensions inputs are known, the adviser will need to check whether any annual allowance charge applies.
If this happens, the client may also need further advice on whether to pay the charge themselves or use scheme pays if available, the article read.
If a pensions saving statement isn’t received in time, the client should make an estimate of any annual allowance charge in their tax return. They can then amend this when the actual figures are known.
Technical Connection stated ideally the pension input would be known in or before the relevant tax year to ensure clients don’t breach the annual allowance.
“However, with DB schemes, although estimates can be made, there is often little choice but to wait for the actual inputs in pension saving statement and work out if any tax charges apply.”
FTAdviser reported earlier this month that the NHS Business Services Authority has failed to deliver almost 3,800 pension statements on time, threatening to create issues for scheme members' tax planning.
It emerged in December that the number of members leaving the NHS Pension Scheme was five times higher than that seen by other public pension funds, most likely because of the effects of pension tax such as the tapered annual allowance.
maria.espadinha@ft.com
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