CONCURRENCY EXPLAINED
by Steve Taylor

The ability to contribute simultaneously to an occupational pension scheme and a personal pension scheme is referred to as concurrency. It has been estimated that eight million people will be eligible to take advantage of the concurrency rules - some of these people will be your clients, so it is important to understand how the rules work.

With effect from 6 April 2001 it will be possible for active members of occupational pension schemes with earnings below the 'Remuneration Limit' to simultaneously contribute an amount up to the 'Earnings Threshold' into a personal pension scheme, including a Stakeholder pension. Any employer contributions paid into the personal pension will be included towards the 'Earnings Threshold'.

The Remuneration Limit is £30,000 for the tax year 2001/02. The figure relates to the amount shown for the year on the client's P60 for the preceding year and does not include any P11D benefits. The Earnings Threshold is £3,600 for the tax year 2001/02.

In addition the client will need to satisfy the following conditions:

• must be resident or ordinarily resident in the UK (or be overseas as a Crown Servant or a spouse of a Crown Servant) at some point in the year
• must not be a controlling director, at any time in the tax year

The fund built up from these contributions will be treated in the same way as other personal pension funds when the client takes benefits. This means that the member will be able to take benefits from age 50 without having to retire and will be eligible for a 25% tax-free cash sum. The remainder of the fund could be used to buy an annuity or to take income withdrawals and defer the purchase of an annuity until age 75.

In comparison, most occupational pension schemes have not yet shown any inclination to change their rules to make AVC/FSAVC benefits more flexible even though the legislation is in place to allow them to do so. In practice an AVC/FSAVC will allow retirement after age 60; require the client to retire and take benefits from the main scheme at the same time and not offer any tax-free cash. There is an income withdrawal facility available under occupational pensions legislation, but it may not be as simple or flexible as the facility under personal pensions.

Common questions

Q What happens next year if a client's salary increases to above the Remuneration Limit?
A If the client's salary is below £30,000 for 2000/01, he or she will be allowed to continue to contribute for the next five years before having to review the salary for concurrency purposes.

Q A client's salary was under £30,000 in 1999/2000, but is over £30,000 this year. Can he or she contribute on the basis of that salary?
A No. The salary for years prior to 2000/01 cannot be used for concurrency purposes.

Q How do these rules affect a client who is no longer a controlling director, but has been in the last five years?
A For this purpose the client must not have been a controlling director in the last five years. However years prior to 2000/01 do not count. Therefore a client who is not a controlling director in 2000/01 can contribute and continue to contribute until he or she becomes a controlling director again.

Q Will the Remuneration Limit and the Earnings Threshold be increased?
A It is quite likely that the Treasury will increase both for each tax year. However it is not clear to what index the increase will be linked.

Q Can the client contribute more than £3,600 p.a?
A It is only possible to contribute more than £3,600 if the client has enough net relevant earnings. However under concurrency rules the client has net relevant earnings of zero and therefore cannot contribute more than £3,600.

Q Can the client contribute to an AVC/FSAVC and a personal pension?
A Yes. The client is still eligible to use an AVC/FSAVC facility alongside his occupational pension scheme up to the normal contribution limits and also contribute to a personal pension by taking advantage of the concurrency rules.

Q What will the maximum retirement benefits be?
A The maximum retirement benefits for the occupational pension scheme will be calculated independently from the personal pension fund. It will be possible for the client to have a maximum pension of two-thirds of final salary from the occupational pension scheme and have the pension from the personal pension scheme in addition.

There are therefore a number of reasons why a client earning under £30,000 could be better off taking advantage of these rules and contributing to a Personal Pension instead of an AVC/FSAVC.

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If you would like any further information or advice on any pension or investment issue please contact
CAMPBELL HARRISON
Pensions and Investment Managers
3 Cloisters Chambers, St Peter's Close, Sheffield S1 2EJ
E-mail: steve@campbellharrison.co.uk
Tel: 0114 272 3994  Fax: 0114 272 3775
Regulated by the Personal Investment Authority

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