PIPS and Carry Forward

PIPS and Carry Forward

The Annual Allowance is a completely separate issue to tax relief in that the total of both employee and employer contributions, whether these are tax relievable or not, will be subject to an Annual Allowance tax charge if they exceed the Annual Allowance limit in any particular year.

  1. What is a Pension Input Period (PIP)?

A PIP is a period of time over which all employee and employer contributions are added together, then tested against the Annual Allowance in the tax year in which the period ends. This period does not necessarily have to run in line with the tax year and could be any length of time – from one week to a maximum of 12 months, straddling tax years. If an individual has a number of pension plans/schemes, then the total of all contributions paid in all PIPs that end in a tax year will be tested against that year’s Annual Allowance.

PIPs pre 6th April 2011

This will start for personal pensions and money purchase schemes when the first contribution is paid into the plan post A Day (6th April 2006), although providers do impose their own default periods on occasion.  For example, if the plan started pre-A Day and monthly contributions are paid on the 1st of each month, this plan’s PIP could begin on the 1st May.


First payment made into a new plan on the 15th March 2009:

First Pension Input Period:  15th March 2009 to 15th March 2010

2nd and Subsequent Pension Input Period:  16th March 2010 to 15th March 2011

PIPs post 6th April 2011

Under revised legislation, the PIP end date should default to the end of the tax year ie. 5th April. Please check with the provider though as some new pension contracts are still being set up with a PIP running for 12 months from set up date (Skandia, for example). Policyholders can usually ask the provider to change this PIP end date, but this may require completion of a letter/form prior to the policy being set up.

For final salary schemes, it is usually the date that benefits first start to accrue post A Day.

  1. How long does a Pension Input Period run for?

Usually 12 months. The length of the PIP may be able to be shortened by making a nomination to end it on a specific date in the future – see question five below.

  1. When do subsequent Pension Input Periods run from?

Plans set up pre 6th April 2011

Any subsequent PIPS will end on the anniversary of the first PIP for that plan. So if the first PIP for an arrangement starts on 15th March 2009, it will end on 15th March 2010. The next PIP will start on 16th March 2010 and run until 15th March 2011 and so on. This assumes that the member or Scheme Administrator do not make any changes to the length of the PIP of course.

Plans set up post 6th April 2011

The first Pension Input Period under a scheme will start from the date that the first contribution is paid to the arrangement.

That first Pension Input Period will then end on the following 5th April unless a later end date is nominated or the provider imposes their own default end date. This nominated end date must be within 12 months of the Pension Input Period starting date.

  1. Where do you get Pension Input Period information from?

The Scheme Administrator. HMRC have no involvement in PIP issues and do not need to be informed of changes to PIPs.

  1. How do I change the Pension Input Period?

If the member wants to manipulate the length of the PIP by bringing it to an end earlier than usual, they simply confirm this in writing to the Scheme Administrator/provider.

You should be aware that some occupational schemes will impose their own PIP and some providers set a default PIP. In these instances, the first nomination made in the tax year takes precedence.

You should also be aware that under the new rules that came into force on 6th April 2011, you will only be able to nominate a future date and not one in the past.

  1. Are there limitations imposed on the length of PIPs?

The main issue to be aware of is that a PIP for one arrangement can only have one PIP end date per tax year, otherwise you would be testing against the Annual Allowance twice in the same year. For example, if the plan has a PIP running say from 9th April 2011 to 8th April 2012, you cannot bring the end date forward for this plan in the 2012/13 tax year. This is because the previous period for this plan will already have ended in the same tax year falling on 7th April 2012.

Carry Forward

You should remember that:

  • The current year’s Annual Allowance must be used up first before undertaking a carry forward exercise.
  • Carry forward uses an assumed Annual Allowance of £50,000 for each of the previous three tax years to 2014/2015 and not the actual Annual Allowance that was in force at that point (if it was higher).
  • For the current tax year, the Annual Allowance is £40,000 (2014/2015).
  • There is a strict order of sequence that must be followed, starting with the current year first, then going back 3 years earlier and then working forward from there.
  • For employees making such a payment, the maximum limit will be based on 100% of salary.
  • No such rule exists where the payment is being made by the employer.
  • Carry forward can only be used if a client has been a pension scheme member in prior years.
  • The test against the Annual Allowance is based on the PIPs that end in that tax year and the total of all employer and employee contributions made within this PIP period.
  • For money purchase plans, it is the contributions paid (by employee OR employer) within a PIP period, that are tested against the Annual Allowance.
  • For Deferred Benefit schemes, there is a more complex formula and HMRC also dictate the level of CPI we need to use in this calculation:


September 2008 (for use for 09-10) 5.2

September 2009 (for use for 10-11) 1.1

September 2010 (for use for 11-12) 3.1

September 2011 (for use for 12-13) 5.2

September 2012 (for use for 13-14) 2.2

September 2013 (for use for 14-15) 2.7

Currently awaiting the figure for 2015/2016

Deferred Benefit worked example showing calculations for one year only – 2011/2012

The example below is based on an individual in the NHS pension scheme with 30 years’ service and a salary of £108,481. These calculations were originally undertaken in 2011/2012 when CPI was deemed to be 3.1%. In 2014/2015 CPI will be 2.7%.

NB. If this calculation was for a 60th accrual scheme – where Tax Free Cash (TFC) is paid by way of commutation, then we can ignore the TFC in the formula.

Annual Allowance Check

30/80ths x £108,481 = £40,680 x 16 = £650,880

Add TFC (3 x pension) = £650,880 = £122,040 = £772,920

£772,920 x CPI (1.031) = opening credit £796,880

31/80ths x £108,481 – £42,036 x 16 = £672,576

Add TFC (3 x pension) = £672,576 + £126,108 = closing credit £798,684

Closing credit – opening credit = £798,684 – £796,880 = £1,804

Deemed relevant benefit accrual in the plan = £1,804