Business News

The New Pension Regime

In his Budget, the Chancellor announced two changes to tax relief on pension contributions for individuals with income above a certain level.From 6 April 2011 it is intended that tax relief on pension contributions will be restricted for individuals with an annual income of £150,000 or more. Relief will be tapered away so that for those earning over £180,000 relief will be worth 20%, the same as to a basic rate taxpayer.  The Government still needs to consult with interested parties before announcing the detail of the changes. 

However, the Government is introducing new rules to apply from 22 April 2009 for those who will be affected by the changes from 6 April 2011. These rules will restrict the higher rate tax relief on pension contributions and will apply in 2009/10 and 2010/11 to individuals whose relevant income is £150,000 or higher, who change their normal ongoing regular pension contributions (or who have not made regular contributions in the past) and whose total pension contribution exceeds £20,000 (gross).

This will remove the advantage to individuals of increasing their pension contributions in excess of their normal pattern before the new rules are introduced on 6 April 2011.

Relevant income is defined in the new rules as total income for the tax year or either of the previous two tax years before pension contributions, personal allowances or any other reliefs or deductions, less normal deductions for reliefs (such as trading losses and any gift aid deductions) and deductions for pension contributions but to a maximum of £20,000 gross.  Where a salary sacrifice is entered into on or after 22 April 2009 for pension contributions this must be added back in the calculation of the relevant income.

All pension contributions, whether made personally, by their employer or any third party, for those individuals who will be affected by the new rules will be taken into account in calculating the overall gross pension contributions limit of £20,000.

Regular pension contributions will be the annual amount of an individual’s total gross contributions (including any employer contributions) to the scheme providing that the contributions were made at least quarterly or more often before 22 April 2009 and any increase in contributions that was agreed before 22 April 2009.

This does imply that if individuals make regular contributions once a year they would not qualify.

If you would like to discuss the above in more detail or to check how the changes may affect you personally, please do not hesitate to contact us.