The Government has introduced partial concurrency allowing an individual to save into a stakeholder pension in addition to an occupational scheme but not everyone will be eligible
One of the retirement planning opportunities created by the stakeholder tax regime is 'partial' concurrency ' the ability for some to pay contributions into a stakeholder or personal pension plan while being a member of an occupational pension scheme. Here are outlined details of 'partial' concurrency. Full concurrency may be introduced from April 2004 as part of the Treasury's radical tax simplification proposals.
The concurrency rules were introduced by a new section of the Taxes Act which became effective from 6 April 2001. Under these rules, contributions are limited to the earnings threshold in each relevant tax year. The earnings threshold, which might be described more accurately as a contribution threshold, is £3,600 a year gross (or £2,808 before income tax relief at the basic rate of 22% is added). The employer can pay some or all of these contributions.
Individuals with two sources of earnings, one pensionable and one non-pensionable, cannot pay contributions under the concurrency rules. This is because they can already pay the higher of the earnings threshold and their appropriate percentage of net relevant earnings by virtue of their non-pensionable earnings. Funds in respect of contributions paid under the concurrency rules are ignored when applying Inland Revenue maximum benefit limits to any of the individual's occupational pension scheme benefits.
How is the £30,000 limit calculated?
The £30,000 limit is based on taxable P60 earnings only. It therefore ignores the taxable value of any P11D benefits, such as a company car.
It also ignores any pension contributions paid to the occupational pension scheme or in-house AVCs. This is because these are deducted from P60 earnings before taxable earnings are derived. For example, an individual with total earnings of £35,294 who is making pension contributions of 15% (£5,294.10) would have taxable P60 earnings of £29,999.90 and would therefore be eligible to pay concurrent contributions. FSAVCs are paid from net pay and would therefore not reduce taxable earnings.
The concurrency test is carried out every year based on remuneration from any of the previous five tax years (ignoring tax years before 2000/2001). The current year's earnings are not relevant.Where remuneration is to be taken into account it is only in respect of part of a tax year, it must be grossed up to an annual equivalent. So for example, P60 taxable earnings of £16,000 earned in six months would gross up to £32,000 and would therefore breach the £30,000 limit.
If, in a following tax year, the individual ceases to have any non-pensionable income, but their pensionable earnings remain above £30,000, they cannot contribute to a personal pension/stakeholder in that tax year using concurrency. This is because the individual cannot use the non-pensionable earnings from a previous year, as they are accruing benefits under an occupational pension scheme (even though it relates to a completely separate employment). And, of course, their pensionable earnings are above £30,000.
When does concurrency start?
A member of a personal pension or stakeholder pension scheme must tell the scheme administrator if they join an occupational pension scheme. They must do this as soon as they join the scheme or when the next personal pension or stakeholder pension contribution is paid. This is so that the scheme administrator can determine for three purposes whether or not the concurrency rules apply.
Firstly, the scheme administrator must determine whether or not the member is eligible to continue contributions under the concurrency rules or under any of the other three circumstances outlined at the start of this article.
Where eligibility to contribute under the concurrency rules applies, these rules only start to apply from the start of the tax year after the individual joins the occupational pension scheme. This means that the individual may continue to pay higher level contributions to their pension under their 'normal' eligibility rules until the start of the next tax year.
Contributions will then be restricted to the earnings threshold under the concurrency rules from the start of the next tax year. If the individual is not eligible to continue their pension contributions under the concurrency rules, contributions must cease at the start of the tax year after joining the occupational pension scheme. This is unless the member is still eligible to contribute under any of the other three circumstances.
The scheme administrator must report to the Revenue whether or not contributions are being paid under the concurrency rules. The status of each policyholder has to be reported to the Revenue with the end of tax year tax return; this is to enable the Government to monitor the take-up rate and success of the new tax regime.
The value of benefits accruing during the period of concurrency will be ignored when applying Inland Revenue limits to the individual's benefits from the occupational pension scheme. This means this part of the pension fund must be notionally segregated.
An individual who has just joined an occupational pension scheme part way through a tax year can start a personal or stakeholder pension under the concurrency rules from the start of the next tax year.
An individual who joins his employer's scheme on 6 April can start a pension under the concurrency rules straight away.
When does concurrency cease?
If an individual leaves their occupational pension scheme part way through a tax year, the concurrency rules are broken immediately on leaving and the individual may pay higher-level contributions for that tax year. These can be based on net relevant earnings from any suitable basis year.
Earnings from the period while they were in the occupational pension scheme would of course be classed as pensionable earnings and may not therefore be used as net relevant earnings for the basis year.
Concurrency allows people to pay into a stakeholder while being a member of an occupational scheme ' rules may be relaxed in April 2004.
Concurrent contributions can be paid on earnings up to £30,000 of taxable earnings in any of the past five years.
Controlling directors and those already eligible to pay into a personal or stakeholder pension by virtue of a second set of pensionable earnings are not entitled to concurrent contributions.
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