The annual allowance taper calculator will be rolled out to advisers through February and March. It accommodates changes announced in the Summer Budget of 2015, which came into effect from April 2016 and cuts the pension savings allowance for higher earners.
Under the new rules for every £1 of ‘adjusted income’ over £150,000 ($187,000, €176,000) – which includes their own and employer’s pension contributions – an individual loses 50p of their annual allowance.
This tapering effect means someone with income of £210,000 is left with an annual allowance of just £10,000, a 75% reduction on the standard £40,000 annual allowance. The Government estimates that this is around 1% of taxpayers.
Those with a ‘threshold income’ under £110,000 cannot be subject to the tapered annual allowance. This is defined by the government as ‘the individual’s net income for the year, less the amount of any lump sum death benefits paid to the individual during the tax year that can be deducted from the adjusted income.’
Complex calculations
The new tool will enable financial advisers to calculate client’s maximum pension funding opportunity. The calculator takes into account the complex rules around defining adjusted and threshold income, as well as any carry forward allowances available.
Old Mutual Wealth managing director of UK distribution, Scott Goodsir, said the group wanted to build something that automated the complex calculations involved in tax year end pension planning.
“Taking advantage of the annual pensions allowance is crucial to good financial planning, allowing clients to maximise their long-term savings capacity and ensuring they don’t forgo the opportunity to fund using carry-forward,” Goodsir said.
“Under the new taper this is especially important since the maximum allowance is so severely curbed for higher earners.”
