Tapering Annual Allowance for DB Schemes

arongunningham

Is it correct that employees contributions, in actual amounts (not using the same formula you'd normally use for DB AA), can be deducted from the DB increase over the period and applied as a reducer to the members Threshold?

I.e. we have a client who had a DB increase for AA purposes last year of £90,000.

If they personally contributed £20,000 - do you use £20k as a personal contribution and £70k as an employer contribution for Tapering purposes?

(I don't know if i've explained my question very well, sorry!)

Contract2Perm

I dont believe the employee conts can be used a reducer i.e., your example of £20k and £70k (based on my humble opinion) - I just dealt with a similar situation this week.

Colinstewart76

https://adviser.royallondon.com/technical-central/pensions/contributions-and-tax-relief/tapering-of-annual-allowance-for-high-incomes/

This would suggest you should deduct employee contributions from db input when calculating adjusted income

arongunningham

Thanks to you both.

I am leaning more towards being able to deduct personal contributions from the DB increase. Although it doesn't really make sense since you're removing actual contributions from a formulated sum.

Luckily, my case wasn't able to increase their AA even if I had applied the employee contributions into DB differently.

benjaminfabi

For threshold income, employer contributions and DB PIAs are irrelevant (unless its a post 8/7/15 salary sacrifice).

Threshold income, in your example is:

• Total taxable income (not given), minus
• gross member contributions (£20,000), equals
• Threshold income

If Threshold income is less than £110k then tapering doesn't apply.

"If they personally contributed £20,000 - do you use £20k as a personal contribution and £70k as an employer contribution for Tapering purposes?"

Yes. The employer contribution, for use in the Adjusted income calculation, is the DB pension input amount LESS the actual employee contributions. This is not linked to the actual employer contributions.

Adjusted income, in your example is:

• Total taxable income (not given), plus
• employer contributions (£90,000-£20,000 = £70,000), equals
• Adjusted income

If Adjusted income is more than £150k then tapering applies on a £1 for £2 reducing basis, where Threshold income is above £110k.

Contract2Perm

@benjaminfabi said:
For threshold income, employer contributions and DB PIAs are irrelevant (unless its a post 8/7/15 salary sacrifice).

Threshold income, in your example is:

• Total taxable income (not given), minus
• gross member contributions (£20,000), equals
• Threshold income

If Threshold income is less than £110k then tapering doesn't apply.

"If they personally contributed £20,000 - do you use £20k as a personal contribution and £70k as an employer contribution for Tapering purposes?"

Yes. The employer contribution, for use in the Adjusted income calculation, is the DB pension input amount LESS the actual employee contributions. This is not linked to the actual employer contributions.

Adjusted income, in your example is:

• Total taxable income (not given), plus
• employer contributions (£90,000-£20,000 = £70,000), equals
• Adjusted income

If Adjusted income is more than £150k then tapering applies on a £1 for £2 reducing basis, where Threshold income is above £110k.

Thanks Ben, something I did not know!