Pension contributions & input periods

Post A-day, the level of contributions to registered schemes is determined by reference to an input period. The input period is relevant, inter alia, for the annual maximum and lifetime allowance tests.

The input period starts when the first post 5 April 2006 contribution is made and, by default, ends 12 months thereafter. It is the end of the period, and the tax year into which that falls, which is relevant.

A nomination can be made (not to HMRC, but to the Pensions Service of the DWP) to change the input period but there can only be one input period ending in a given tax year.

Having now passed 5 April 2007, the opportunity to make a nomination for the first input period to end in the 2006-2007 tax year has now been lost. A high earner wishing to maximum fund a money purchase registered scheme has, therefore, foregone the ability to utilise the annual maximum for 2006-2007 (because no input period would have ended in that tax year).

HMRC assert that the nomination is nothing to do with them. Whilst this is strictly correct, as far the making of the nomination is concerned, we can only wait to see whether HMRC will choose to penalise those individuals who mistakenly over-contribute in the absence of a nomination.

With this being a one-off timing issue arising out of the "simplified" rules, hopefully commonsense will prevail, with HMRC choosing not to pursue the point. Notwithstanding, it may be prudent for individuals, who have not already made a nomination, to limit their total contributions made for the period 6 April 2006 to 5 April 2008 to £225,000 (being the annual maximum for 2007-2008).