Posts by Sean

Sean Browes

Sean Browes

Sean has over 20 years experience in the pensions industry and is a specialist in technical administrative aspects, data issues and the development of software tools.
Sean Browes

I was sat in a pub with a friend recently and the conversation got round to pensions. It went something like this:

Friend – I’ve been thinking about putting some more money into my personal pension. Last time I looked into this, the maximum I could put in was 15% of my gross taxable earnings in any one tax year. Is this still the case?

Me – Ah! Things have changed. It’s all been simplified now. You can put in as much as you want …

Friend – Excellent!

Me – … except, if you go over your annual allowance, you’ll get hit for some pretty severe tax charges.

Friend – Oh … so how much ‘tax relieved’ contributions can I put in?

Me – Depends on your Pension Input Period.

Friend – My what?

Me – The actual Revenue definition is ‘the period over which you measure the amount of your pension saving’.

Friend – So not the same as a tax year?

Me – It could be … but not necessarily. In fact, it pretty certainly won’t be.

Friend – So what’s the maximum if my Pension Input Period ends after April 2011?

Me – Depends ….if it’s before 14th October, then, technically, £255,000 but the maximum contribution after 14th October 2010 is limited to £50,000. … unless.

Friend – Unless?

Me – you have unused relief from any of the three previous years. The Government has put in place some transitional arrangements which means you have a notional £50,000 for each of the last three years. If you haven’t used it all, you can carry it forward.

Friend – So, if I’ve put nothing into my pension in the last three years I could put in £150,000?

Me – Yes … except … how much do you earn?

Friend – £135,000 a year.

Me – Ah!

Friend – Ah?

Me – In that case you are deemed to be a high earner so the maximum contribution you could make before 5th April this year is £20,000.

Friend – £20,000?

Me – … or maybe £30,000.

Friend – Sorry?

Me – This is your Special Annual Allowance – it was introduced as an anti-forestalling measure by the previous Government when they attempted to restrict the tax relief for high earners. If you can demonstrate that you have made irregular contributions in any of the last three years with an aggregate value of £30,000 or more … your Special Annual Allowance is £30,000. Otherwise, it’s £20,000 … or, in some cases, between £20,000 and £30,000.

But, you see, the new Government then decided to stop messing around with tax relief and just limit the amount of tax advantaged contribution you could put in. So, the anti-forestalling measures are no longer required and have been removed under legislation, effective from the start of the next tax year.

Friend – But they still apply to this tax year?

Me – Oh yes! By the way, the tax charge is slightly different if you were to exceed the Special Annual Allowance –the Special Annual Allowance Charge effectively arises by restrciting the tax relief available on contributions in excess of the Special Annual Allowance to your basic rate so, in your case, it amounts to 20%. The Annual Allowance Charge is 40%.

Friend – (adopting glazed expression) I see (not really seeing at all). What about after April?

Me – Assuming you pay £20,000 before April 2011, between £30,000 and £130,000, depending on how much unused relief you’ve got available.

Friend – I’m not sure when my Pension Input Period runs from or to. What if my current Input Period ends before the 5th April? What would the maximum [tax relieved] contribution be?

Me – Hey, fill your boots, £255,000! Except ….

Friend – Except?

Me – You’re a higher earner so ….

Friend – I’m restricted to £20,000?

Me – Yep, anything over that would be subject to the Special Annual Allowance Charge.

Friend (with a hint of irony) – Well, thanks for clarifying that. I have another friend who’s in a defined benefit scheme – he asked me to ask you the same question.

Me – (Pause to reflect on the question) … did you see the football last night?

As the saying goes ‘you couldn’t make it up’. Actually, that’s not true, this is clearly a made up conversation (those of you who know me will know that I don’t go to pubs very often these days and I don’t have any friends).

The message, sadly, is not made up. There is a great deal of complexity around the reduction in the Annual Allowance from April this year and associated transitional arrangements. As intimated, there are added complications for Defined Benefit arrangements.

Up to now, the annual contribution limits have been generous and unlikely to be infringed except by all but the highest earners or those making large, one-off contributions. However, there is now significant potential for large numbers of active members to get tripped up by these legislative changes. For any type of scheme, trustees and/or employers should be communicating to members/employees, certainly in advance of April.

Individuals might want to seek the advice of their scheme administrator if they are a high earner (earning in excess of £135,000 per annum) and/or are making significant contributions. Alternatively, feel free to contact me or your usual Spence & Partners contact.

Sean Browes

Why reinvent the wheel?

If, as industry figures increasingly tend to show, defined contribution(DC)  pension schemes are the way forward and defined benefit (DB) schemes are going to continue to wither on the vine, then it is time for some radical thinking about what the future should look like.

The marketplace is awash with new ideas and the government is falling over itself to come up with new initiatives, but the question has to be asked: why re-invent the wheel? Read more »

Sean Browes

The Pensions Regulator has released figures suggesting that non-professional pension trustees are increasingly uncomfortable with their responsibilities and are losing confidence in their ability to fulfil their role effectively.

The figures showed that just 56% of trustees were able to describe their understanding of their role as “very good”, a drop of 12% from the previous year. There was also a 5% decline in the number of trustees who knew how their scheme’s assets were invested. Read more »

Sean Browes

I came into work earlier this week and was struck by the state of the desks. Each workstation resembled one of those fake rooms you see in Ikea or MFI except the computers were not made of cardboard – there was not a scrap of paper to be seen.

Why so? It wasn’t so I could write a blog with a particularly corny title but as a result of our clear desk policy, which has been in force for some time. The whole issue of data security is at the fore again as a result of HSBC getting heavily fined by the FSA for breaches in data security. Read more »

Sean Browes

I was interested to read the results of the latest Capita Annual Pensions Administration survey. The survey shows that 57% of schemes are on some form of fixed cost administration contract (either purely fixed fee (30%) or core fee plus per capita charge (27%)) yet this would be the preferred approach for 92% of schemes. However, cost was only ranked 5th in order of importance in choosing third party administrators (TPA), with the top 4: Read more »

Sean Browes

A right Royal pension

Congratulations to Bucks on the award of a Royal Warrant – it must be reassuring for the Queen to know she can rely on her pension administration system when she’s burning the midnight oil bashing out the Buck House Annual Benefit Statements.

I wonder what type of scheme she operates and, if DB, whether the scheme is in deficit? Mind you, I guess there wouldn’t be an issue with the strength of the employer covenant.

Sean Browes

At the last budget, the Chancellor introduced significant changes limiting tax relief on pension scheme contributions for those with ‘relevant’ earnings over £150,000pa, tapering down to 20% for those with earnings over £180,000pa (i.e. the same as basic rate tax payers).

The changes are to be effective from 2011. However, the Chancellor has introduced a new special annual allowance test to prevent excessive contributions in the interim.

Read more »

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