Taxpert Pencon Tool

Complicated and changing pension legislation

Many people struggle with understanding how tax relief for their pensions savings works, especially how different pension allowances can make a difference to the amount of pension contributions they should be making now, and as a result what tax is then owed.

In the 2020 Spring Budget the Chancellor announced that the two tapered annual allowance thresholds would be raised by £90,000 and the minimum tapered annual allowance would be decreased to £4,000 from April 2020.

In the 2023 Spring Budget the Chancellor announced further significant changes: increasing the annual allowance to £60,000 and returning the minimum tapered allowance to £10,000. The adjusted income limit for the taper calculation is increased from £240,000 to £260,000. In addition, the lifetime allowance cap is removed from 6 April 2023 and many taxpayers can now resume making contributions without losing the benefit of any lifetime allowance protection.

These changes could have a significant impact on clients who are high net worth individuals.

The Absolute Pencon Tool has been updated for these changes, allowing you to quickly and simply show your clients how they can maximise their pension contributions.

Product overview

The Excel based Taxpert Pencon Tool has been created to help tax advisers to better advise individuals on their 2023-24 and 2024-25 pension contributions. It allows users to look at an individual’s pension contributions on a case by case basis.

The Pencon Tool is a three step process to helping your clients make the best decisions when it comes to their pension contributions:

·Step 1 is a review of their current pension savings portfolio, based on their income and pension savings history.

·Step 2 calculates what pension contributions each client should make based on their personal circumstances and the different allowances and reliefs available to them.

·Step 3 produces a detailed and easy to understand report which can be given to your clients to help explain their current and future pension position, based on the contributions they are making.

The App enables users to review pension contributions based on:

• earnings, income and pension savings history from 2018-19 to 2023-24;
• direct contribution into money purchase schemes;
• net pay contributions (ie where employer deducts from gross pay);
• gross paid contributions (eg to old style retirement annuity contracts);
• employer contributions to money purchase schemes; and
• pension inputs to defined benefit schemes.

The Taxpert Pencon Tool will then:

• calculate an individual’s available annual allowance;
• determine their tapered annual allowance, where relevant;
• apply the money purchase annual allowance, if appropriate;
• calculate the amount subject to the annual allowance charge (if any);
• advise on the maximum allowable pension contribution which can be made in that year; and
• advise on the minimum pension contribution to make, to avoid wasting any unused annual allowances

The Tool also includes:

• a pension input amount estimator for final salary schemes;
• a “scheme pays” tool; and 
• the 2024-25 Scottish tax rates.

The Taxpert Pencon Tool in action

• John’s financial adviser told him his company could pay £40,000 into John’s pension in 2023-24 and £60,000 in 2024-25 and get corporation tax relief and John would have no tax to pay. John’s earnings are £300,000 a year. He has been doing this for some years! Oh dear – John will have a personal tax liability of £13,500 in 2023-24 and £9,000 in 2024/25.

• Jill is an NHS manager with gross salary for 2023-24 of £204,000 and a pension input amount figure of £60,000 from her NHS pension. Her annual allowance excess is £32,000 on which tax will be £14,400. Using the Pencon Tool you advise Jill to pay a personal pension contribution of £3,200 net because that will reduce her annual allowance excess to £24,000 on which the tax will be £10,800. With the same figures in 2024-25 Jill will only have an annual allowance excess charge of £2,000 on which the tax liability will be £900. Payment of a personal pension contribution of £3,200 net will actually increase Jill’s tax by another £900!

Why use the Taxpert Pencon Tool?

The Pencon Tool has been designed specifically to help you advise clients on the tax implications of their pension savings. You can use it to identify the required tax return entries for 2023-24, but also to identify the tax consequences of different pension savings strategies in 2024-25. In addition, the Pencon Tool shows you if any excess allowance charges arise. As with all the Absolute Taxpert Apps, the Pencon Tool gives you the full workings and calculations and you will have total confidence that the tax figures you show to your clients are correct.

Pencon Tool in action – feedback from our users

“The Pencon tool has proved invaluable in unpicking the complex area of maximum contributions and the dreaded pensions annual allowance charge. It is possible to spend many wasted hours trying to make sense of a particular case. The Pencon tool saves a great deal of time through quickly confirming your assumptions and calculations are correct or, in some instances, confirming that you should have chosen a different career!”

Mark Asquith FCCA, Asquith and Co. Accountants Limited

Pricing

The Taxpert Pencon Tool costs just £99 + VAT for a single user licence. However, if you buy the Taxpert Pencon Tool you can then purchase any of the following Taxpert Apps for just £50 + VAT per App for a single user licence:

• Taxpert Tax Calculator
• Taxpert Profit Extractor
• Taxpert Incorporation 

Further details about the range of Taxpert Planning Apps can be found here.