The previous government announced that it was restricting pension relief to taxpayers that earn more than £150,000 a year. This took 22 pages of tax law and involved complex calculations.
The new government has decided to keep the pension restriction but to implement it in a simpler way. This is done in two stages:
- the annual allowance is being reduced from £255,000 to just £50,000 from 6 April 2011
- the lifetime allowance is being reduced from £1.8 million to £1.5 million from 6 April 2012.
Points you need to consider are:
- Are pension schemes still tax-effective for high earners?
- Is there opportunity to exploit the rule that allows unused annual allowance to be carried forward for three years? This includes using deemed allowances from 2008/09 for 2011/12
- Can you benefit from some of the transitional reliefs if you are already exceeding these new allowances?
- Are you offering an employer-financed retirement benefit scheme (EFRBS) that is caught by these new provisions?
Whatever type of pension scheme you operate, you should have it reviewed in light of these and other developments being planned.
Please note these other pension changes already announced:
- the NEST scheme of employee pensions is introduced from 2012
- national insurance relief for contracted out money purchase schemes is withdrawn from 2012