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Section 227B(5) Finance Act 2004

If the money purchase annual allowance rules apply for a tax year and a pension input amount for a hybrid arrangement must be taken into account, there are special rules for the hybrid arrangement if the following applies in respect of the hybrid arrangement:

• there is a pension input amount for a possible defined benefits provision and other money purchase provision and both pension input amounts are the same in amount, or
• there is a pension input amount for a possible defined benefits provision and collective money purchase provision and both pension input amounts are the same amount, or
• there is a pension input amount for a possible defined benefits provision and cash balance provision and both pension input amounts are the same in amount, or
• there is a pension input amount for a possible defined benefits provision together with at least two of other money purchase provision, collective money purchase provision and cash balance provision and the pension input amount for the defined benefits provision is the same in amount of whichever is the greater, or greatest, of at least two of the pension input amounts for the other money purchase, collective money purchase and cash balance provisions.

Where there are such pension input amounts for the hybrid arrangement, the pension input amount for the possible other money purchase, collective money purchase or cash balance provision is used as part of the money purchase annual allowance test instead of the pension input amount for the possible defined benefits provision.

Example

Pavel is subject to the money purchase annual allowance for tax year 2016 to 2017 due to flexibly accessing a money purchase arrangement in the previous tax year. The money purchase annual allowance for the tax year is 拢10,000 (for tax year 2017 to 2018 onwards, it is 拢4,000).

For the tax year, Pavel has one arrangement to take into account for the annual allowance which is a hybrid arrangement. The pension input period ending in the tax year for the arrangement had started after Pavel flexibly accessed the money purchase arrangement.

The hybrid arrangement may provide either defined benefits or other money purchase benefits when he retires.

Pavel must calculate the pension input amount as if the arrangement had been a defined benefits as well as an other money purchase arrangement. Ordinarily, whichever is the greater of those amounts is the pension input amount for the arrangement for the tax year concerned. For the tax year, he determines his defined benefits pension input amount for the arrangement is 拢15,000 and his other money purchase pension input amount is also 拢15,000.

As Pavel is subject to the money purchase annual allowance and the pension input amount for his hybrid arrangement happens to be the same whether based on the defined benefits provision or the other money purchase provision, the pension input amount that applies for the money purchase annual allowance test is that for the other money purchase provision.

For the money purchase annual allowance test, this means the full other money purchase pension input amount (拢15,000) is tested against the money purchase annual allowance (拢10,000 in this case) and that there are no other pension input amounts to test against the alternative annual allowance.

This means Pavel鈥檚 alternative chargeable amount for the tax year is 拢5,000 (拢15,000 less 拢10,000).

Pavel must also calculate his default chargeable amount for the tax year by comparing his total pension input amount for the tax year against the annual allowance for the tax year. The annual allowance for the tax year is 拢40,000.

In this case, it does not matter whether Pavel uses his defined benefits pension input amount or his other money purchase pension input amount for the purpose of his total pension input amount as the same amount (拢15,000) is tested against the annual allowance.

Pavel does not have a default chargeable amount for the tax year as 拢15,000 less 拢40,000 = nil.

For the tax year, Pavel鈥檚 alternative chargeable amount applies as that amount (拢5,000) is greater than his default chargeable amount for the tax year (nil).

Pavel is liable to an annual allowance charge on 拢5,000 for the tax year.