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Carry on, don&#39t lose your relief

Personal pensions – the end of life as we know it? No, it is not quite that drastic.

Last week, we looked at the current personal pension rules with particular reference to carry forward. There has been a lot of publicity about the abolition of carry forward on April 5. This is not quite true. Unused relief cannot be carried forward to 2001/02 and later years but April 5 is not the cut-off date.

Unused relief cannot be carried forward to cover contributions deemed paid in 2001/02 and later years.

Contributions that are paid in 2001/02 can, however, be carried back to 2000/01 provided they are paid before January 31, 2002 and the carryback claim is made at the same time as the contribution.

If a contribution is deemed paid in 2000/01, then carry forward can still be used.

Contributions paid on or after February 1, 2002 cannot be carried back to 2000/01.

Carryback claims made on or after February 1, 2002 or after the contribution is paid will not be allowed.

From April 6, all personal pension contributions will be paid net of basic-rate tax. If a contribution is to be carried back or unused relief is to be carried forward, the claim forms or copies must be sent to the life office. Missing the cut-off date could mean a refund of some or all of a contribution and an unhappy client.

The chart (right) details timescales for contributions and to whom claim forms should be sent.

Why use your clients use carryback and carry forward in 2001/02?

It really is your last chance to use carry forward and make up for underpayments in previous years.

As in previous years, carryback should be considered if you could have got more tax relief in the previous year.

As both employed and self-employed clients will pay contributions net of basic-rate tax from April 6, carryback will not make a difference to basic-rate taxpayers in the amount of tax relief available. The main benefit will be the time extension of carry forward.

Higher-rate taxpaying self-employed clients should speed up the additional tax relief by claiming carryback.

Here is a personal pension checklist for IFAs advising on carry forward and carryback in 2001/02.

Review all your personal pension client files. How many of them still have unused relief available for between 1993/94 and 1999/2000? Possibly quite a few even after any encouragement you gave in 2000/01 to top up contributions.

Consider a mailing campaign to point out that it really is now a buy now while stocks last opportunity. Think about how you should tackle this. Are your clients more likely to respond to an individual letter or should you send a general letter to all personal pension clients and then follow up on the response?

Consider when you want to target clients. The cut-off date for contributions to be carried back is January 31, 2002. A good time to focus people&#39s minds might be in November or December. Ideally, you should spread your efforts over several months to ensure contributions and claims can be made within the time limits.

Whatever you decide, do not leave it to the last minute. Contributions paid and claims made at the last minute leave no room for error. If something goes wrong, there is no room for manoeuvre to put things right.

You need to co-ordinate with your clients&#39 accountants. Because the carryback claim must be made at the same time as the contribution, it is not a matter of the contribution being paid and later deciding if a carryback or carryforward claim is advisable. Make sure you discuss the benefits of topping up the pension contributions with the accountant. It may affect other advice given to the client.

Make appointments with accountants to discuss the benefit of joint calls with clients for the purpose of using carry-forward and carryback in 2001/02. There must be potential leads here, with business opportunities for both accountant and IFA.

Remember that even with carry forward you can never pay more than your relevant earnings in the year or deemed year of payment. Note that this is relevant earnings not net relevant earnings. Relevant earnings are not capped.

In 2000/01, if relevant earnings were £120,000 and net relevant earnings £91,800, the gross contribution limit would be £120,000 if you had sufficient unused relief available to carry forward.

Retirement annuities are not affected by the new rules. Carry forward and carryback will therefore still apply. It might be worth your while doing a mailing campaign to these clients reminding them of their good fortune.

Not only can they continue to use carryback and carry forward but they can diversify by doing retirement annuities and personal pensions in alternate years to make the best of both worlds.

Next week, we will summarise the rules that will apply for personal pension contributions paid and deemed paid in 2001/02 and after.

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