Summer Finance Bill 2015 – changes and impact on pension allowances

We look at the notable changes introduced in relation to annual allowances, pension input periods and the transitional arrangements that will be available.

Key concepts

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The Summer Finance Bill was published on 15 July 2015 and is expected to receive Royal Assent on 20 October 2015. In summary, the notable changes are:

  1. The introduction of a tapered annual allowance for individuals with an adjusted income (including the value of pension contributions) of over £150,000. From 6 April 2016, for every £2 of adjusted income over £150,000 an individual earns, that individual’s annual allowance will be reduced by £1.  The maximum reduction to the annual allowance will be £30,000, so that anyone with adjusted income of £210,000 or above will have an annual allowance of just £10,000. To ensure this measure is focused on the higher and additional rate tax payers, those with income, excluding pension contributions, below £110,000 will not be subject to the new taper.
  2. In order to facilitate the taper, pension input periods will be aligned with the tax year. 
  3. As announced in the March Budget, there will be a reduction of the Lifetime Allowance (LTA) from £1.25m to £1m with effect from 6 April 2016. There will be transitional protection for pension rights already over £1m to ensure the change does not have retrospective effect.

Transitional measures 

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  • For the tax year 2016/17, consider whether the taper will apply in order to plan ahead for contributions. Any unused annual allowance from the three previous tax years will be able to be carried forward and added to the current annual allowance. Where the annual allowance is reduced by the taper, the amount that can be carried forward will be the balance of the tapered amount. We recommend that you check whether you have any unused allowance to carry forward in any of these years.
  • The adjusted income definition prevents individuals avoiding the taper through salary sacrifice.  As “adjusted income” includes employer pension contributions, the allowance cannot be manipulated by reducing income through salary sacrifice. The Government has also announced that salary sacrifice schemes tapered will be actively monitored.
  • We recommend mechanisms are in place to prevent exceeding the annual allowance.
  • Given the reduction in the LTA for pension contributions from £1.25m to £1m from 6 April 2016, we recommend considering the use of transitional protection if you will be adversely affected. Two further forms of protection will be implemented in the Finance Bill 2016. We would recommend seeking further tax advice on how to apply for such protection.
  • We also suggest that you consider seeking financial advice as to the most tax-efficient capital growth options, in order to maximize pension contributions in the current tax year before the reductions apply. 


  • Consider pension scheme rules and whether the provisions limit pension accrual to the annual allowance. If this is the case, you may wish to seek advice on amending those rules.
  • In relation to the annual allowance Pension Input Period (PIP) change, the 2015/16 transitional measures (detailed above) may permit high earning employees to contribute larger amounts to their pension scheme without incurring an annual allowance charge.
  • Review your scheme’s benefit structure and reward packages offered to employees. Consider what will be the impact on the employees affected by the tapered annual allowance (i.e. those individuals with an adjusted income (including the value of pension contributions) of over £150,000).
  • Consider offering high earners alternatives to continued benefit accrual. For example by providing the option of opting-out of benefit accrual and receiving a cash allowance instead.
  • Consider how salary sacrifice arrangements implemented from 9 July 2015 may align with the new income measures.
  • For the LTA reduction, employers should prepare communications to assist individuals understand the protections that will be available, noting that full details of these are not yet available. Employers may auto-enrol employees who have fixed protection, fixed protection 2014 or enhanced protection. Those employees should opt out of the pension scheme within the one month deadline to ensure they do not lose the protection, because the protections will be lost if an individual builds up any additional benefits under any registered pension scheme.


  • New scheme communications should satisfy the revised tax requirements. Trustees should therefore issue non-specific information about the lifetime allowance available to their members so that they can then decide whether the lifetime allowance is relevant.
  • Scheme members should be informed about the forthcoming LTA reduction and annual allowance changes and available protections.

If you have any questions or would like more information about the changes introduced by the Bill, please contact one of our pension specialists.

This information is intended as a general discussion surrounding the topics covered and is for guidance purposes only. It does not constitute legal advice and should not be regarded as a substitute for taking legal advice. DWF is not responsible for any activity undertaken based on this information.

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Tim Green

Partner - Head of Pensions

I am a Partner in the Pensions team with a broad advisory, transactional and dispute resolution practice.

Colin Greig


I have extensive experience of providing clear, practical advice to employers, trustees of pension arrangements, institutions and individuals on a wide range of pensions issues.

Michael Salters


I have some 20 years' practical experience in the pensions and employee benefits field, having worked at both leading actuarial consultancies and law firms.