The Annual Allowance Flashcards
What considered pension input and what is not?
Money put into a pension by the pension owner or someone else, whether before or after tax.
Investment growth is not input
Contributions made after 75 are excluded from input
Contributions or benefit increases are ignored for years of death or taking benefits due to severe ill.
How is input worked out for DB pensions?
(Accrued benefit at the start of the year+CPI)-benefit at end of year=increase
Increase x16=input
When working out DB input what should be ignored?
Actual contributions made and costs to the employer.
Who does tappered annual allowance effect?
Those with adjusted income of more than £260,000 AND threshold income of £200,000
How is adjusted income worked out?
Total gross income that would be exposed to income tax + employer contributions - taxable lump sum Death benefits
What is threshold income?
Total gross income that would be exposed to income tax - gross contributions (individual/3rd party, not employer) - taxable lump sum Death benefits + reduction of employment income for salary sacrifice set up after 8 July 2015
How is the annual allowance reduced?
£1 for every £2 above the total adjusted income
What is the money purchase annual allowance amount, and what does it relate to
£10,000 per year for the life of the DC scheme. Not used on DB
Can carry forward be used for MPAA
No, but it can be used for alternative allowance on the DB scheme
What is the default chargeable amount?
Total pension input for all schemes - current years annual allowance and carry forward.
What is the alternative chargeable amount?
Input into DB schemes - alternative annual allowance and carry forward + money into money purchase schemes - MPAA.
What is scheme pays?
A method charging a large tax charge to the scheme when the memebers annual allowance charge exceeds £2000
And
The input scheme in question exceeds the annual allowance
How are benefits reduced under scheme pay
DC just reduces the benefits by the charge.
DB is reduced by an amount calculated by applying the computation factor.
What is a common commutation factor?
12:1
Benefit reduced by £1 per annum for every £12 of tax.
