Pension Saving Statement: everything you need to know

In this blog we explain why you have might have received a Pension Savings Statement from us, in our capacity as the Scheme Administrator of your SIPP or SSAS, what it's for and what you might need to do next.

What is a Pension Savings Statement?

A Pension Savings Statement is a written summary of the amount of contributions paid into your pension scheme during a particular tax year, (or other time period ending in a tax year), and the Pension Savings Statement that you have recently received from us is in respect of the 2015/16 tax year.

Why have I received a Pension Savings Statement from you?

We have to issue a Pension Savings Statement to you if the total amount contributed into your pension scheme during a Pension Input Period (PIP) is more than the Annual Allowance (AA) for the tax year in which the pension input period ends.

The AA is set by HM Revenue and Customs (HMRC), and represents the maximum amount of pension contributions that you are allowed to receive tax relief on, each tax year.

The AA for the tax year ending 5 April 2016 is £40,000 (gross).

For the 2015/16 tax year only, the tax year is split into two ‘mini-tax years’, so that everyone’s PIP will be aligned with the tax year from 2016/17 onwards:

1. the ‘pre-alignment tax year’ (6 April 2015 to 8 July 2015 inclusive); and
2. the ‘post-alignment tax year’ (9 July 2015 to 5 April 2016).

Please note that each of these periods are for AA purposes only.

For the pre-alignment tax year, you have an AA of £80,000 plus any unused AA that you carry forward from the three previous tax years, (2012/13, 2013/14 and 2014/15).

For the post-alignment tax year, your AA is zero but you can carry forward up to £40,000 of any unused AA from the pre-alignment tax year, plus any unused AA that you carry forward from the three previous tax years.

What do I now need to do with my Pension Savings Statement?

Where contributions to your pension arrangement(s) exceed the AA in the relevant tax year, there may be an AA tax charge payable on the amount of the excess over £40,000.

You need to find out if you have an AA tax charge, and the information contained in your Pension Savings Statement should help you to ascertain this.

If you (and/or your employer) contribute to more than one pension scheme, you need to add the contribution(s) in these other schemes to the pension contribution outlined in our Pension Savings Statement, to give you your total pension contribution.

As HMRC rules allow you to carry forward any unused AA from the previous three tax years, up to the maximum for each year, this could help to offset any pension contribution amount that exceeds the AA for the 2015/16 tax year.

HMRC offer an online AA calculator to help you to calculate any unused AA and establish whether you have an AA tax charge.

What if I have an Annual Allowance tax charge?

If you have to pay an AA tax charge, you need to calculate the tax amount payable.

The rate of tax is calculated at the same marginal rate as your taxable income, and is dependent on any other taxable income you have received during the tax year in which the AA tax charge occurs.

You are responsible for paying the AA tax charge, and you need to declare it to HMRC when completing a self-assessment tax return. If required, one can be obtained by registering on HMRC’s website and this should be submitted to HMRC by 31 January 2017.

HMRC have also published a help sheet to assist you when completing your tax return, which includes details of the ‘mini-tax year’ rules for the 2015/16 tax year, as summarised above.

Please note that if your total pension contributions exceed £40,000 and your AA tax charge is more than £2,000 in respect of your SIPP or SSAS, you could make an election for your SIPP or SSAS to pay all or part of your AA tax charge on your behalf, through use of the Scheme Pays facility.

What if I am subject to the Money Purchase Annual Allowance?

You may also have received a Pension Savings Statement if you are subject to the Money Purchase Annual Allowance (MPAA) and have paid contributions above this. If you exceed the MPAA, a tax charge is due. 

From 6 April 2015, where you ‘flexibly access’ a money purchase pension arrangement, (which includes a SIPP and SSAS), a reduced AA, known as the Money Purchase Annual Allowance then applies to any subsequent contributions to money purchase pension arrangements.

The MPAA is currently £10,000 gross per tax year and, furthermore, the ability to carry forward any unused allowances from previous tax year is lost.

In his Autumn Statement on 23 November 2016, the chancellor outlined plans to reduce the MPAA to £4,000 gross per tax year, with effect from 6 April 2017. This potential reduction is currently the subject of a consultation, which ends on 15 February 2017.

Where can I find out more information?

Further information about your Pension Savings Statement, the AA and the Scheme Pays facility can be found at: http://www.hmrc.gov.uk/pensionschemes/understanding-aa.htm

Please note that Barnett Waddingham is unable to provide you with advice on your personal tax circumstances. Instead, we recommend that you talk to either your financial adviser, or your tax specialist, if you have any questions concerning your Pension Savings Statement and the AA tax charge.

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