Carry forward unused pension relief – HMRC clarification

Up to £200,000 may be contributed to a pension by using unused reliefs from the previous 3 years.

Initial HMRC guidance stated that an individual would have had to have been an ‘active’ member of a registered pension scheme that could have received pension input during the tax years in question during the carry forward years. 

However, this has now changed. HMRC have now stated that it is not actually necessary for an individual to have been an ‘active’ member of a registered pension scheme that could have received pension input during the tax years in question that they are carrying forward from –  it is simply sufficient to have been a ‘member’ and a pensioner member would appear to include anyone who was utilising income drawdown or who was in receipt of an annuity or scheme pension during the carry forward years in question.The implication of the ‘active’ member requirement would have been that if the only scheme someone was a member of during the carry forward years was an occupational pension scheme (OPS) and the member was a ‘deferred’ member of that OPS, then because no contributions could have been paid into it, the member could not take advantage of the carry forward facility.

Based on a further response that we subsequently received from HMRC relating to membership of a S32 buy-out policy, it appeared that this restriction would have also applied if the only scheme someone was a member of during the carry forward years was a S32 that had been funded by a transfer-in from an OPS, and the scheme rules had not been amended post A-day to allow any contributions to be made into it.

However, for individual’s who had a personal pension, stakeholder or S226 retirement annuity contract during the tax year(s) that the carry forward years, then even if no contributions were actually made, this shouldn’t present a problem given that contributions could have been made (but weren’t).

The recently updated HMRC Registered Pension Scheme Manual (RPSM) however, now states that a pension scheme member for the purpose of the carry forward facility would include either (quote) ‘’an active member, a pensioner member, a deferred member or a pension credit member’’

Given that this contradicts the guidance we had previously been given by HMRC, we queried this with them but they have confirmed that the recently updated guidance in the RPSM is definitely correct in the context of the carry forward provisions.

So, as per an example we put to them, if someone left an OPS in 1998 and was still a deferred member of that scheme during the 08/09, 09/10 and 10/11 tax years (but they had not been a member of any other registered pension schemes since 1998) they would have an unused Annual Allowance of £150,000 for those 3 tax years, in which case total pension input of £200,000 could potentially be paid into a new scheme with an input period ending in 2011/12 without incurring an Annual Allowance Charge. 

Similarly, if the only scheme an individual was a member of during the carry forward years was a scheme that held a pension credit as a result of a pension sharing order on divorce (and regardless of whether this was as a ‘shadow’ member of the original members scheme or after applying an external transfer value of the pension credit to a pension plan in their own name) this would also qualify for the purpose of the carry forward facility. 

Following on from this, in respect of ‘pensioner’ members, we also asked HMRC the following question:- ‘’ Whilst a pensioner member would presumably include anyone who was in receipt of a scheme pension from a Defined Benefit or Defined Contribution scheme on a ‘pay as you go basis’ or utilising income drawdown under a registered pension scheme during any of the previous 3 years, would this also apply to someone who had no other pension rights during the tax years in question other than either (a) an annuity in payment that they were receiving from an insurance company or (b) a scheme pension that had also been secured via an insurance company?’’ 

HMRC’s response to this question was as follows:-    

‘’A pensioner member is defined as a member of a pension scheme who is entitled to the payment of benefits from the scheme and who is not an active member. Individuals in the circumstances you have set out would therefore be able to take advantage of the carry forward provisions.’’

In summary then, and contrary to previous guidance we had received from HMRC, it is not actually necessary for an individual to have been an ‘active’ member of a registered pension scheme that could have received pension input during the tax years in question that they are carrying forward from –  it is simply sufficient to have been a ‘member’ and a pensioner member would appear to include anyone who was utilising income drawdown or who was in receipt of an annuity or scheme pension during the carry forward years in question.   

Whilst this simplifies matters it is obviously quite frustrating to have been given incorrect guidance from HMRC previously.

As ever, get in touch with either Robin Melley or Gary Matthews on 01746 712900 if you want further information.

 

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