For this tax year only investors could contribute up to £80,000 into their pensions due to changes to pensions input periods (Pips).
A Pip typically used to start on the day of your first contribution into a pension and then ran for a year. Contributions within a Pip were tested against the tax year that corresponded with the last day of the period to determine whether the annual allowance had been breached. "But this caused headaches when testing a person's contributions against their annual allowance, particularly when they had lots of schemes with different Pips," said Lauren Peters, wealth management adviser at Helm Godfrey.
To simplify this, all Pips will be aligned from 6 April 2016. As part of the alignment process, all Pips ended on 8 July 2015, and a new one started on 9 July 2015 that ends on 5 April 2016.
If you made contributions between 6 April and 8 July 2015, you could make another one before 5 April 2016 of up to £40,000 as long as the combined contributions do not exceed £80,000.
"For example, if you paid £50,000 into your pension before 8 July 2015, you could pay in a further £30,000 now," explains Gareth James, head of technical resources at AJ Bell. "If you paid in less than £40,000, you won't be able to top up your pension by the full £80,000, but you will be able to contribute another £40,000. So if you paid £30,000 into your pensions before 8 July 2015, you can pay in a further £40,000, making a grand total of £70,000."
For some people, this provides a planning opportunity. "This is particularly the case for those who want to boost contributions before they are hit by the new rules that will taper the annual allowance for high earners from April, or for those who wish to boost contributions before stopping them all ahead of the new tax year in order to secure fixed protection 2016," says Ms Peters. "This protection allows you to maintain the current lifetime allowance of £1.25m rather than the £1m level after 6 April, safeguarding up to £250,000 of pension savings from the lifetime allowance tax charge."
Also remember that any personal pension payments made cannot exceed your earnings for the current tax year. So, for example, if you earned £75,000 this tax year you could not put more than this amount into your pension.
