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The pension planner will take data from the IRIS database, where it exists, but alternative figures may easily be entered. The buttons to the right of each field give access to a detailed display showing the construction of the 'IRIS' figure. It is possible to use this button to toggle between IRIS's figures and your own.
The first stage is to enter the net relevant earnings (the NRE column) for the current year and, at least, the previous six years. The earliest year accessible is the year ending 5/4/1989. The reason for entering the previous six years will become apparent at step 5.
IRIS will compute the maximum contribution that may be paid in the year (shown in the Max column). This is simply the NRE x % limit. The percentage limit is determined by the client's age. The NRE figure will be capped if it exceeds £99,000 in 2003-04, different caps apply in other years.
Enter the payments actually made, or try entering a higher payment to see if it falls within the limits for tax relief. The amount entered should exclude any amount carried back to an earlier year and include any amount brought back from a later year. This breakdown of premiums carried back may be entered via the detail screen accessed by clicking the button to the right of the payment field.
If the client pays into both Personal Pension schemes and Retirement Annuity schemes, the computation of unused relief is less straightforward. With only one type of premium, unused relief is computed by deducting the premium paid from the maximum allowed. The leftover amount is unused relief. (If the payment exceeds the maximum allowed, this is called an excess premium. The excess premium then absorbs earlier year's unused relief.) With both types of premium, the unused relief is basically computed by deducting the sum of both types of premium from the maximum allowed. The RAR and PPC reduction columns show the effect that the other type of premium has had on the computation of unused relief. This cross relation of premium types is probably the best reason for using a computer to calculate the unused relief available!
The unused relief column shows the amount of unused relief, if any, that exists for each year. Where the total payment made is less than the maximum allowed, the difference is stored as unused relief. If the payment exceeds the maximum allowed, the unused relief from earlier years is automatically absorbed. The oldest relief is used first, ie six years before the year in question (this is why so many years of data are required). If the payment exceeds the maximum allowed and all the preceding six years unused relief, the excess payment will not qualify for tax relief.
The unused relief shown on the screen is the net relief remaining. As data is entered on the screen, the relief is automatically adjusted to accommodate the new information. It is possible to see the original unused relief and the amount absorbed, for any year, simply by pointing at the unused relief amount on the screen. A tool-tip will display the original unused relief:
