Super earners can invest half a million in their pension this year

Super Earners’ who rank in the top 1% of earners in the UK can more than double the maximum SIPP (‘Self Invested Personal Pension’) Annual Allowance for this tax year, says Fidelity FundsNetwork.

A little known concession allows investments of up to £460,000 by allowing next tax year’s maximum investment - £235,000, into their SIPP along with this year’s - £225,000 by investing by ‘input periods’, rather than tax year. Provided an individual has relevant earnings of £460,000, they can invest a total of £460,000 before the current tax year ends on 5th April 2008 and be eligible for tax relief on the contributions.

Rob Fisher, Head of Sales & Marketing, Fidelity FundsNetwork said: “While the new pension regime brought it with many benefits, not all are as widely known as others.

“The concession of investing by input periods instead of by tax year provides an additional layer of flexibility and is something that those who fall into the ‘super earner category’ – in the top 1% of earners in the UK may do well to consider.”

Input periods are usually over a time frame of one year, beginning on the date that the investor makes an initial payment into their SIPP and ending 12 months later. However, if the maximum AA (‘Annual Allowance’) for that input period has been reached within that time, investors can choose to end the input period early. If this is the case, and the end date is before the end of the tax year in which the initial payment was made, a new input period can begin – enabling the investor to make a further payment within the current tax year, but using the AA from the new input period.

Key Factors to Consider When Investing by Input Period:

The £460,000 figure above is arrived at by taking the AA for 2007-08 (£225,000) and adding the AA for 2008-09 (£235,000)

AA limits are measured by when the input period ends - there can't be more than one "end of input period" per tax year. So the test at the end of the input period is: has the investor paid more than the current AA limit during the input period?

In the final year of a plan, input periods don't apply as long as all benefits are uplifted.

The input period only determines AA limits but not the period of tax relief - tax relief is given in respect of the tax year in which the contribution(s) is paid - if an investor pays £460,000 in this tax year through tweaking input periods but only has £300,000 relevant earnings, tax relief is only payable on the £300,000.