Where these situations occur, and they will occur more frequently as this tax year draws to a close, all is not lost. To be able to make a contribution in respect of any carry forward of unused allowance from the 2008/09 Annual Allowance, clients will need to set up a separate arrangement to accept the contributions. When starting the new arrangement they will need to agree with the scheme administrator that the initial pension input period will end no later than 5 April 2012.

This will ensure that any contributions paid to the new arrangement in that period will be tested against the 2011/12 Annual Allowance and can therefore include any unused allowance that can be carried forward from the 2008/09 tax year before that allowance is lost.

By implementing this approach this will also ensure that the client still has the Annual Allowance for the 2012/13 tax year available to them.

1. When does the pension input period end in the client’s current arrangements? It may differ by arrangement and will determine how much of the rest of this tax year is available in which contributions for the 2011/12 Annual Allowance, and any carry forward of unused Annual Allowance from the 2008/09 tax year, can be paid into that arrangement.
2. Existing pension input periods on most money purchase arrangements can be amended by written notification to the scheme by the member. However, some group schemes have a standard pension input period that applies at scheme level and cannot be amended for an individual. Where the flexibility exists any new end date must take into account HM Revenue & Customs requirements that a member cannot have two pension input periods ending in the same tax year for each arrangement.
3. In working out any unused Annual Allowance entitlement from previous tax years it  is the contributions or benefits accrued in the pension input period that ended in that tax year that are used. This may require analysis from arrangements that have subsequently been transferred. In the case of defined benefit scheme membership it will be the increase in the value of the pension rights in that period less the increase in CPI, as measured from the prevailing September, and converted to a capital value using a 16:1 multiplier.

Identifying a client’s pension input period history for arrangements currently in place, is essential. This will allow effective planning of when a funding review for a client should take place in a tax year, where consideration of using carry forward of previous unused Annual Allowances is being given.

Whilst it may be too late to use the existing arrangement for this purpose for this tax year, the possible solution above may provide an option to create a better long-term plan for future reviews to take place at the right time in the tax year for clients affected.

Our new interactive pension planning tool called Routes to Retirement aims to help you advise your clients on how to get the most out of the current retirement planning options available, with the aim of helping them enjoy a better retirement experience.

The tool looks in detail at a number of very different case studies, each of them representing a different type of client with different circumstances and needs. In each case we examine the various ways in which you could help such a client build a decent income for retirement and how Skandia can support your advice.

Routes to Retirement is only available via your Skandia Business Consultant but you can find out more details at  www.skandia.co.uk/R2R