Annual allowance – deferred member carve out
The ACA has published a short brief to its members that highlights aspects of the so‑called “deferred member carve out” (DMCO) in pensions tax law. Where a member satisfies the requirements, this provision helpfully means that a member does not use up any annual allowance (AA) in the relevant period.
Aspects of HMRC guidance highlighted by the ACA include:
- How AA is used up by a member of a DB arrangement which has closed to “service-addition” accrual, but where the accrued DB pension remains salary-linked provided the member remains in the employment
- Where a member does not benefit from the DMCO but his/her benefits increase only with the leaver revaluation under the particular scheme’s rules. Typically that revaluation will reflect an inflation measure for AA purposes that is “timing-misaligned” with the CPI offset used to calculate AA usage, and so the benefits may use up surprising amounts of AA
Comment
The vast majority of DB members have now ceased accrual. When they do so (and in particular when they have left the employment to which a scheme relates) they generally do not expect that their scheme benefit will continue to use up any AA. However, there is a growing group for whom that is not true. Given a reducing AA that is £40,000 at best, and as low as £10,000 at worst, this issue means that the AA has a real impact that is wider and messier than members would expect and that schemes and administrators would hope for.
This Pensions Bulletin does not constitute advice, nor should it be taken as an authoritative statement of the law. For further help, please contact David Everett at our London office or the partner who normally advises you.
