Pensions

Question 1

Threshold Income

Answer 1

Taxable income for the tax year
less
Any taxable lump sum pension death benefits accruing in the tax year
plus
Employment income given up for pension contributions (i.e. salary sacrifice) under an arrangement made on or after 9 July 2015
less
Gross Employee pension contributions to Personal pension or net pay arrangement

For threshold income include all earnings and investment income, deduct gross member contributions whether under relief at source or net pay arrangement, add any employment income given up through a salary exchange agreement set up after 8 July 2015 and finally deduct any taxed lump sum death benefit received. For adjusted income include all earnings and investment income, add any employer contributions and finally deduct any taxed lump sum death benefits received.

Question 2

Adjusted Income

Answer 2

1) Identify the amounts of income on which the taxpayer is charged to income tax for the tax year. The sum of those amounts is “total income”. Each of those amounts is a “component” of total income (components of this income will include all taxable income as covered previously). This is Step 1 in the calculation section of the Income Tax Act 2007.
2) Deduct from the components the amount of any relief under a provision listed in relation to the taxpayer in section 24 to which the taxpayer is entitled for the tax year. See section 25 for further provision about the deduction of those reliefs. The sum of the amounts of the components left after this step is “net income”. This is Step 2 in the calculation section of the Income Tax Act 2007. Also for more information on the reliefs which are deductible, see the Income Tax Act section 24 and section 25.
3) Add the amount of any pension contributions:

Under Net pay arrangements
Gaining UK tax relief but made to overseas pension schemes
Using Excess relief under net pay provisions
Using relief on making a claim provisions
4) Add the value of employer contributions, which are:

Money Purchase = value of contributions
Defined Benefit = Pension Input Amount minus member contributions (technically you have to add in the total pension input amounts and subtract the member contributions but this amounts to the same thing and is simpler)
5) Subtract the amount of any taxable lump sum pension death benefit paid to the individual in that tax year

. For adjusted income include all earnings and investment income, add any employer contributions and finally deduct any taxed lump sum death benefits received.

Question 3

State pension entitlement

Answer 3

• Based on qualifying years of NI contributions
• Need 35 years for full amount, otherwise pro rate
• Minimum 10 years
• Foundation amount calculated at 5 April 2016
• Contracting out effects foundation amount
• Higher of amount under old rules and the amount of new state pension if that was in force at start of working life