HM Treasury has today confirmed the measures that the Government will be adopting to restrict pension tax relief from 6 April 2011.
The announcements provide clarity for the future regime and remove the complexities introduced by the previous Labour administration. As a result, retirement planning will become much simpler which, in our view, is good news.
The main points are as follows:
• Annual Allowance – £50,000pa from 6 April 2011. This includes both employee and employer contributions,
• From 2011 there will be the ability to carry forward unused contributions from the previous three years (ie back to 2008/2009 for 2011/12), potentially enabling contributions of up to £200,000 in a particular year
• The Lifetime Allowance will be reduced to £1.5m from 6 April 2012. There will be some form of protection for those clients who have already made contributions and whose funds are likely to be between £1.5mill and £1.8mill when they draw benefits and continuing protection for those individuals who have already been granted Enhanced and/or Primary Protection
• There will be a flat rate factor of 16 times for calculating deemed contributions to Defined Benefit (DB) schemes
• Tax relief will continue to be at the individual’s marginal rate. This means that high earning individuals will be able to receive up to 50% tax relief on their contributions
• The Government is looking to change the tax rules on EFRBS that will mean they are less attractive than any other forms of remuneration. In reality this is likely to mean that EFRBS will no longer be an effective retirement planning solution
• From April 2012 the triviality limit will be de-linked from the Lifetime Allowance and it will remain at its current level of £18,000.
As is always the case, there is more information to follow and some further consultations to take place.
Ray L Best