• The transitional rules work by treating the pension input period as if it were two separate input periods. The ‘pre-announcement period’ starts from the beginning of the PIP and ends on the 13 October 2010 and the ‘post announcement period’ starts on 14 October 2010 to the end of the pension input period.
• The maximum tax relievable pension saving a member can have in one or more arrangements that have a pension input period that straddles the 14 October 2010 but end in the tax year 2011/12 is £255,000, but the maximum pension input that could be made to such a PIP from 14 October 2010 until the end of that pension input period is £50,000.
• To value the pension input amount under a Defined Benefit scheme the valuation factor is 10:1 for the pre-announcement period and 16:1 for post-announcement period. It is necessary to know the rate of pensionable pay at 13 October 2010 to work out the pension input in respect of the pre- and post-announcement PIPs. In calculating the opening value for both these periods a full CPI increase is given. For PIPs ending in 2011/12 the CPI is that for September 2010 ie 3.1%).

The chargeable amount in respect of the post-announcement period (14 October 2010 till the end of the PIP) is the amount of the pension input that exceeds £50,000 for that period.

The chargeable amount in respect of the pre-announcement period (start of the PIP to

13 October 2010) is the value of the pre announcement period pension input less the difference between £255,000 and the lower of £50,000 and the amount of the post-announcement pension input. If the result is negative the chargeable amount is nil.

Defined benefit scheme accrual

Emma is a member of the XYZ defined benefit pension scheme. The scheme has a 1/60ths accrual rate and she has 20 years pensionable service. The pension input period for the scheme is from 1 May to 30 April and her pensionable earnings on 1 May 2010 are £40,000, increasing to £42,000 by the 13 October 2010 and £52,000 on 30 April 2011.

Pre-announcement PIP:

Opening value:
20/60 x £40,000 = £13,333.33 x 10 (valuation factor) = £133,333.30 x 1.031 (CPI) = £137,466.63
Closing value:
(20 + 166/365)/60 x £42,000 x 10 = £143,183.56

The increase in the pre-announcement PIP is £143,183.56 - £137,466.63 = £5,716.93

Post-announcement PIP:

Opening value:
(20 + 166/365)/60 x £42,000 x 16 (valuation factor) = £229,093.70 x 1.031 = £236,195.60
Closing value:
21/60 x £52,000 x 16 = £291,200

The increase in the post-announcement PIP is £291,200 - £236,195.60 = £55,004.40

The post-announcement PIP exceeds £50,000, so the amount subject to a charge is £5,004.40 (ignoring any carry forward of unused annual allowance)

The pre-announcement chargeable amount is £0 since (£5,716.93 – (255,000 – 50,000) = - £199,283.07)

Emma’s total chargeable amount for 2011/12 is £5,004.40