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Categories:Regulation

Advisers warn over HMRC pension calculator mistakes

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Advisers are warning that HM Revenue & Customs’ pensions annual allowance calculator is producing incorrect results for certain investors as it fails to take account of straddling pension input periods.

In October 2010, the Government set out plans to cut the annual allowance from £255,000 to £50,000 from April 2011.

Policymakers introduced transitional protection for people whose pension input period started before October 14, 2010 and ended in the 2011/12 tax year so that anyone with a PIP beginning before that date who had made big contributions towards a target annual allowance of £255,000 would not be unfairly penalised. This is known as the straddling pension input period.

The transitional provisions apply if the total pension input for 2011/12 exceeds £50,000. It works by treating the straddling period as if it was two separate input periods. This means total contributions in the straddling input period are treated on the basis of a £255,000 annual allowance. Within this overall limit, any contributions made from October 14 onwards are based on the new £50,000 limit.

The Advice Lab director Fraser Grant says HMRC has failed to account for these transitional rules in its own online annual allowance calculator.

He says: “This is serious because there is no disclaimer on the calculator and you would expect HMRC to interpret the legislation correctly. Anyone thinking of using this should be wary because it may well give you the wrong answer.”

Standard Life head of pensions policy John Lawson says between 10,000 and 20,000 people could fall under the straddling rules.

In one example Lawson entered into HMRC’s calculator, he says the available annual allowance for 2012/13 was underestimated by £67,000.

He says: “This is always a risk when you have complicated rules, which is why we decided not to put our calculator in the public domain. You cannot put something out that is not right or people lose trust.”

HMRC was unavailable for comment on the issue.

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Readers' comments (5)

  • The calculator specifically identifies straddling input periods as one of the circumstances where the calculator should not be used?
    "You also can't use the calculator if any of the following applies:
    your pension input period began before 16 October 2010 for the 2011-12 tax year and your pension savings are more than £50,000 for that year - follow the second link below to find out more....."

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  • The calculator page referred to in the article appears to have been disabled and according to advisers the guidance did not appear on the same page.

  • "SO MUCH FOR PENSION SIMPLIFICATION"

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  • Its not just the HMRC calcualtor thats wrong many of the providers make the same error. As to markco's comment this warning was not adjacent when I first saw the calculator. Given the original fixed protection forms had errors the HMRC have previous here. The point is complexity in rules is not clever it always catches people out, especially the rule makers!

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  • It is a shame that no one connected to this article actually bothered to read HMRC's notes on using their calculator. They made it pretty clear in which circumstances it could not be used, including those for whom the transitional rules applied. Rather than making negative comments, why don't the critics make availaable a calculator that doesn't have these issues?

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  • The calculators from HMRC and others should not produce wrong answers from correct data. HMRC have the limitations on a separate web page from the calculator. It would be better if these were posted on the same page as teh calculator. The data should be validated before a result is produced and avoid the calculator being used in situations that it is not designed for.

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