As you may be aware, the Treasury's Pre-Budget report provides further detail about the proposed changes to tax relief on high earners' pensions with effect from 6 April 2011. It also introduces further and immediate restrictions to the "anti-forestalling" legislation introduced under the Finance Act 2009.

Restricting pensions tax relief from April 2011

From 6 April 2011, a "high income excess relief charge" will apply to individuals with an income of £150,000 or more, with a taper gradually reducing relief to 20% as that income reaches £180,000. The Chancellor announced that employer pension contributions will be included in the definition of income for these purposes, but there will be a floor so that irrespective of the size of employer pension contributions, nobody with an income below £130,000 will be affected.

HM Treasury has launched a consultation on its full proposals, which can be found here.( http://www.hm-treasury.gov.uk/prebud_pbr09_consult_pensions.htm) The consultation runs until 3 March 2010.

Anti-forestalling: changes effective from 9 December 2009

Under the proposals introduced from Budget Day (22 April 2009), a special annual allowance charge will apply if an individual with income above £150,000 changes their normal pattern of pension contributions and their pension savings exceed £20,000 per tax year (or the average of irregular DC contributions over the past three years, but capped at £30,000). Further detail can be found in our Law-Now. (http://www.law-now.com/xc.asp?g=BD91A228-560E-43C0-A520-C74704B4D8A7)

Individuals already caught by these provisions should not be affected by the pre-Budget report changes. However, the anti-forestalling provisions will now also apply to:

  • individuals whose income is £130,000 and over (with income calculated under the existing anti-forestalling rules, save that only salary sacrifice agreements made on or after 9 December will be taken into account for determining whether an individual has relevant income over £130,000 but below £150,000);
  • who change their normal ongoing regular pension savings; and
  • whose total pension savings in a tax year exceed £20,000 (or the lower of £30,000 and average contributions over the past three years if contributions are less regular than quarterly).

This will only be in respect of pension inputs, over and above normal regular contributions, made on or after 9 December 2009. Further information can be found here. (http://www.law-now.com/cmck/pdfs/nonsecured/pbrdec09.pdf )

Summary

As a result of the Chancellor's latest intervention in relation to the pensions tax regime, there will be a significant increase in the number of individuals caught by the anti-forestalling provisions. Steps should be taken to identify and to contact those with relevant income of £130,000 or more who might otherwise change their regular patterns of saving.

In the longer term, the consultation on the post-April 2011 changes gives employers, trustees and advisers an opportunity to have their say on the final shape of these important provisions restricting higher-rate tax relief.

If you would like to discuss these issues further, please speak to your usual contact in the CMS Cameron McKenna pension team.

This article was written for Law-Now, CMS Cameron McKenna's free online information service. To register for Law-Now, please go to www.law-now.com/law-now/mondaq

Law-Now information is for general purposes and guidance only. The information and opinions expressed in all Law-Now articles are not necessarily comprehensive and do not purport to give professional or legal advice. All Law-Now information relates to circumstances prevailing at the date of its original publication and may not have been updated to reflect subsequent developments.

The original publication date for this article was 10/12/2009.