Pension News

The Chancellor had announced in April 2009 as part of his Budget speech that from April 2011 those with incomes of £150,000 or more would receive reduced tax relief on pension contributions, the relief being tapered down to 20%. Complex anti-forestalling provisions were introduced in the Finance Bill 2009 to limit tax relief on certain contributions made before April 2011. The limit of £150,000 was reduced to £130,000 in December 2009.

In broad terms, these anti-forestalling provisions limit tax relief to 20% on contributions exceeding the amount of ‘regular’ contributions for ‘high-income individuals’. These are individuals whose income is £130,000 or more in the tax year or in either of the preceding two tax years. Where contributions had not previously been made on a ‘regular’ basis (quarterly or more regularly), the fully tax-relieved contribution was originally to be limited to £20,000 in a tax year for those high-income individuals.

Following the amendment full tax relief will now be given for the lower of:

1. the average of the contributions made in each of the three tax years 2006-07, 2007-08 and 2008-09;
2. £30,000; and
3. earnings in the tax year of the contribution.

There is no requirement for all the contributions taken into account to be made to the same pension scheme.

Although this new provision should mean that those making annual contributions may be able to obtain full tax relief for higher contributions than under the original proposals, such taxpayers will still be disadvantaged as compared with those who were making monthly or quarterly payments. For example, a taxpayer earning £250,000 a year and paying £5,000 monthly in pension contributions since before April 2009 will continue to obtain full tax relief on the £60,000 paid. On the other hand, someone with the same income who pays the £60,000 each year as a single annual premium will obtain full tax relief only on £30,000 in 2009-10 and 2010-11."