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Treasury urged to scrap Pension Input Period

The Treasury is facing calls to scrap the Pension Input Period following its decision to cut the annual allowance from £255,000 to £50,000.

Experts argue the PIP, the timescale HMRC uses to measure annual payments into a pension scheme, could be out of sync with an employer’s tax year. If that is the case, an employee could face an unexpected tax charge if they mistakenly believe the tax year and the PIP are aligned.

Hargreaves Lansdown head of pensions research Tom McPhail says removing the PIP is a “job left undone” by the Government’s higher rate pensions tax relief reforms.

He adds: “The problem is that pension schemes may not have their scheme year, their Pension Input Period, aligned to the tax year.

“And for anyone who changes their job, or transfers their pension, or is trying to accumulate concurrent pension benefits in more than one pension arrangement, there is a risk they will fall foul of this PIP if it is not aligned to the tax year.”

For example, an employee is working for a company running a final salary scheme with a PIP from June to June. If she builds up benefits with her current employer and then changes jobs, the employee could mistakenly make a large pension contribution at the start of the next tax year on 6 April, unaware that it is outside her previous employer’s PIP and thus could be subject to a tax charge.

McPhail says: “In this case, all the employee built up this year actually land in the next tax year. We as an industry are going to have to explain this to everybody.”

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