PENSIONS - 31.03.2011

Deadline for PIP election extended

Election. There’s some good news for people caught in the pension input period (PIP) trap, which we reported recently (yr.11, iss.8, pg.4, see The next step). The Taxman has agreed to extend the deadline for making an election to retrospectively change PIPs which commenced on April 7 2010 and end on April 6 2011. They will now have until the date on which this year’s Finance Act becomes law; this is usually mid July.

Does this affect you? If you had a pension scheme before April 6 2006, its PIP is automatically set to run from April 7 to the following April 6 each year, unless you’ve elected to change it. If this applies, any contributions made on or after October 13 2010 count towards your pension contribution limit of £50,000 for 2011/12 and not 2010/11 as you might expect. This might mean that you’ve already exceeded next tax year’s contribution limit and are facing a tax bill.

Tip. You can avoid this trap by electing to change the PIP end date from April 6 2011 to April 5 2011 (or earlier) (see The next step). This will mean premiums paid since October 13 won’t count towards your 2011/12 pension contribution limit.

For a previous article on PIPs (TX 11.13.08A) and on how to elect (TX 11.13.08B), visit http://tax.indicator.co.uk.