#IWD2022: Top pension tips for the end of the tax year

by | Mar 7, 2022

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By Jessica List, Pension Technical Manager at Curtis Banks and featured as part of our International Women’s Day coverage throughout this week to celebrate the contributions and impact of women in the UK financial services sector. IWD2022 takes place on March 8th. 

It feels like a terrifyingly short time since I was last drafting an end of tax year piece. I’m sure I used to roll my eyes when people talked about how each year seemed shorter than the last, and yet here I am doing the same.

Regardless of whether you feel the last year has flown or crawled, 6 April is only a few weeks away, so here are our top three pension tips for the end of the tax year.

Watch out for Spring Statement surprises

The Office for Budget Responsibility is busy preparing its forecast for 23 March. Since the pandemic, it seems that the timings of announcements have been a little less predictable than normal. Therefore while the Spring Statement should be more of an update, it may be unwise to completely rule out the possibility of changes being announced on that date.

While it’s unlikely that anything significant announced on 23 March would take effect right away, it’s not entirely out of the question. As we’ve seen previously – for example, when the pension input period alignment exercise was announced in the summer of 2015 – sometimes rule changes are announced with immediate effect in order not to leave loopholes or opportunities for people to take unfair advantage. It’s also possible for a larger upcoming change to come with smaller immediate changes to prevent the same risks – as we saw in November with the latest announcements relating to the normal minimum pension age increase in 2028.

Another possibility is that a change announced in March might simply be enough to make clients want to reconsider their existing plans. For example, an upcoming drop to the annual allowance might prompt clients to consider whether they wish to try to contribute more while the higher allowance is still available.

Watch out for the tapered annual allowance

For higher earners, perhaps the biggest pension headache from the last few years is the tapered annual allowance. As we come around to the end of the tax year it’s likely that more people will be completing their tapered annual allowance calculations, as they have a better idea of their exact income for the year.

Remember that the threshold and adjusted income figures changed in April 2020, from £110,000 and £150,000 respectively, to £200,000 and £240,000. The minimum allowance also dropped from £10,000 to £4,000. However, if you are completing a carry forward calculation for clients affected by tapering, earlier tax years will still need to be calculated using the old figures.

Some clients won’t have contributed above the £4,000 minimum figure during the tax year until they were in a position to calculate their exact allowance. Others may have contributed based on a best estimate of their income and are now looking to check the figures. It’s worth noting that while it’s possible for contributions to be refunded if they turn out to be in excess of an individual’s earnings for the year, it’s not normally possible to return a contribution if it only turns out to exceed the person’s annual allowance.

Clients who have exceeded their allowance and don’t have carry forward available to cover the excess will need to pay an annual allowance charge; either personally via their tax return, or potentially through their pension using “scheme pays”. Unfortunately for clients affected by the tapered annual allowance, the scheme pays rules only oblige providers to offer the service if the contributions to that scheme exceeded the normal annual allowance, rather than the client’s tapered allowance. Therefore such clients are likely to need a provider that offers scheme pays on a voluntary basis in order for this option to be available.

Check provider deadlines

In an ideal world, all clients’ arrangements would be sorted out comfortably ahead of the tax year ending. However, in reality there are plenty of reasons why a client might wait until towards the end of a tax year to take an action relating to their pension – and plenty more reasons why this might accidentally end up taking place later than expected.

Whatever the action, and whatever the reason, it will be important to check providers’ tax year end deadlines as soon as possible. Each provider may have different cut off dates based on their own administration processes and system requirements, and are likely to have different deadlines for each specific process.

Many providers publish their tax year deadlines on their websites, and it’s well worth checking them in advance to make sure clients’ last minute plans are still possible.

To find out more about International Women’s Day 2022 Visit https://www.internationalwomensday.com/


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