Pension Tax Relief Consultation

Published / Last Updated on 23/07/2010

Pension Tax Relief Consultation

by Ashley Clark, Director - July 2010

Con-Lib Government plans to cut pension tax relief look set to be simplified again but cut dramatically as the Treasury consults with the industry on the same.

2006 - Original pension simplification rules, a yearly pension contribution limit of over £200,000 per person with full tax relief for both basic rate and higher rate tax payers. I.e. up to 40% tax relief

2009 - March 2009 Budget cuts higher rate pension tax relief for those earning over £150,000 and then again further limits applied with effect December 2009 (pre budget) for restrictions to higher rate relief for those earning over £130,000.

2011 - Currently all high earners (over £130,00) will receive tax relief limited to 20%.

Con-Lib Consultation 2011?

  • The annual allowance i.e. the maximum you can pay into a pension scheme each year will possibly reduce for higher earners to between £30,000 and £45,000 per year and is likely to be £40,000 pa.
  • This will save government £5bn by the end of 2015 (Treasury estimate).
  • As well as some of the basic issues that some people do pay more than this now, it can also have an impact of members of final salary pensions schemes where a “special calculation” has to be done to work out the effective annual contribution. For example, if you get a £4000 a year pay rise, it could mean that your pension entitlement increases by £2000 a year.
  • This may then be valued at £40,000 or more as an effective contribution (under current Annual and Lifetime Allowance calculation rules). You might then get a pensions penalty tax just because you had good pay rise.

Watch this space …..

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