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Pensions – after 6 April 2011

December 9, 2009

The position, however, for high earners after 2011 will be different. The Government announced at Budget 2009 its intention to restrict tax relief on pensions savings with effect from 6 April 2011 for those with incomes of £150,000 or over. Today it issued a consultation document on how the restriction will be implemented from April 2011.

Essentially, the basic intention is that tax relief on pensions contributions will be restricted for those on “gross incomes” of £150,000 and over, gradually tapering down so that for those on incomes of £180,000 and over the tax relief is worth the same as it is for a basic tax rate payer.

An individual’s “gross income” will include both the value of the individual’s pension contributions and any pension benefit funded, or eventually funded by, the employer on their behalf. It is also calculated before any deductions for charitable donations are made.

However, there will also be a ‘floor’, so it will only apply where the individual’s income (excluding employer pension contributions) is £130,000 or over. So an individual is not affected unless their pre-tax income including their own pension contributions and charitable donations is £130,00 or over.

That said, it seems from the consultation document that there are still a number of major issues, let alone detailed issues, to be considered (e.g. how tapering works, how employer contributions will be valued for final salary schemes, how the restriction on relief will be delivered). As such it will be sometime before we see how the legislation will truly shape up for high earners after 2011.

The consultation will run for 12 weeks and the closing date for responses is 3 March 2010.

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Pensions – up to 2010/11

December 9, 2009

In today’s pre-budget report, the Chancellor announced that the anti forestalling measures on tax relief to pension contributions for high earners (introduced at Budget 2009) will be extended to individuals with “relevant income” of £130,000 or more. The income threshold was previously set at £150,000 in April.

At the core of the anti-forestalling provisions is a special annual allowance set at £20,000 (or in certain circumstances where contributions have been paid less regularly than quarterly the limit may be increased to £30,000) and associated tax charge which has the effect of restricting tax relief on pension contributions to the basic rate of tax.

The change effectively means that anyone who earns above £130,000 and either they or their employer makes pension contributions above their normal ongoing regular pattern of pension savings will lose their higher rate tax relief on pension savings over £20,000 (or £30,000 if applicable) in any tax year. Industry experts believe that up to 150,000 additional people could be caught by the changes.

However, the extended anti forestalling provisions will only apply to contributions made after 9 December 2009 and will not apply to normal regular ongoing pension savings before that date whatever the value. But, the total value of non-regular contributions made between 6 April – 8 December 2009 will reduce the special allowance available for 2009-10.