UK: RP Issues - A Briefing For Registered Providers Of Social Housing - Spring 2012

Editor's comment

This edition is again packed with valuable information of significance for the RP sector. There is a discussion on the various changes affecting property generally in the draft Finance Bill, with some particularly interesting developments on REITs.

We also cover the important options facing most RPs as a result of the latest SHPS valuation. Some of these options may have substantial financial repercussions for RPs so this article is particularly interesting.

We discuss the impact of various changes to charity law, which affect all RPs to some extent. This is an area that continues to develop so expect to see more articles in the future as the position evolves. We then summarise the main financial reporting changes that will impact on the sector in 2016, together with our advice on what associations should be doing in response.

Finally, we have four further important articles: a discussion on the increasing focus on value for money in the sector, an update on that crucial tax affecting all RPs, namely VAT, a commentary of fraud threats, sadly also increasing in these challenging economic circumstances, and a summary of the changes to the tax position of employees leaving defined benefit pension schemes.

DRAFT FINANCE BILL IMPLICATIONS FOR THE PROPERTY INDUSTRY

By Claire Perrett.

There are a number of provisions included within the draft Finance Bill 2012 tailored to the property sector.

Notably, REITs were singled out for overhaul, notice given of possible changes to property alternative investment funds (PAIFs), and refinements made to the capital allowance claims process on second -hand fixtures.

It is perhaps heartening to see that thought is being given to encouraging investment into property with a driver being tax efficiency.

The changes in brief

REITs

• The abolition of the 2% conversion charge.
• Allowing REITs to list on AIM and Plus Markets and their overseas equivalents. (Private REITs are not permitted).
• Introduction of a grace period to meet the non-close company requirement (a tax technical term), the strategy being that a close company will be permitted to convert to REIT status, provided it attracts sufficient investors over the first three years so that it becomes nonclose within that three-year period.
• Introduction of diverse ownership rules where an institutional investor will not automatically make a REIT a close company. The effect, it is hoped, will increase sources of capital.
• A recognition of current lack of supply and stagnation in the property market, by the removal of the requirement to reinvest cash within two years of receipt.
• A lengthening of the time limit from three to six months for distributions to be made from the REIT, where the requirement to distribute at least 90% of profits is met in the form of stock dividends in lieu of cash.
• A refinement to the assessment of whether a REIT has met the financing condition, to only consider excess finance costs.

PAIFs

In common with REITs, the take up for PAIFs has been unspectacular. To kickstart their use, measures in the Finance Bill 2012 outline how it is to be made easier for funds to convert to the PAIF tax regime.

Broadly, the Government intends to enable investors to exchange units in a dedicated PAIF feeder fund for units in the PAIF directly without triggering capital gains tax (CGT). Similarly, the movement from an underlying PAIF to a feeder PAIF will not create a CGT charge.

These suggested changes follow an initial consultation, with further discussions to follow. To date, only a very small number of PAIFs have been launched. They all have high minimum investment levels and exclude retail investors.

It is understood that a number of property funds are considering conversion to PAIFs. In particular, the changes should enable the smaller retail investors to include PAIFs in their portfolios.

These changes to PAIFs and REITs taken together, may mark the beginning of a policy shift to unlock investor money – time will tell.

However, these measures are perhaps a 'slow burner'. Radical change may be required to encourage funds or wealthy individuals to invest in property outside of London and the South East.

Capital allowances

One other area worthy of mention relating to property and the Finance Bill 2012 is capital allowances. As ever, the rules on claiming allowances have been altered, on this occasion to deal with a perceived potential for abuse around claims made for 'historic' spend. When fully implemented, the new rules mean:

• capital allowance claims on secondhand fixtures purchased after implementation will only be possible if relevant expenditure has been pooled prior to the transfer and
• the purchaser and seller either agree a value for fixtures within two years of the transfer, or one party to the transaction makes application within those two years to a formal process to agree their value.

The significance is that capital allowances can no longer be an afterthought. The interesting element here is will a nontax payer (pension fund) incur time and expense dealing with capital allowances, and will any negotiation on values be affected by the potential need to undergo a formal valuation process at Tribunal? It would have been encouraging to see some form of relaxation of the rules where a non-tax paying entity is involved in a transaction.

The Finance Bill 2012 is due for Royal Assent in July 2012, consultation continues and what the above shows is that representations are being listened to, some more than others. We will follow up on developments and the law when enacted in due course.

BRACE YOURSELVES

IT'S THAT TIME AGAIN FOR THE SOCIAL HOUSING PENSION SCHEME

By Christopher Murray

Christopher Murray discusses the options available to RPs once The Pensions Trust has delivered its latest valuation results.

Can it really be three years since RPs locked into the Social Housing Pension Scheme (SHPS) were dreading a letter from The Pensions Trust with news of how much the cost of their pension schemes would increase? Well here we are again, at a point when liabilities have increased beyond expectations and investments haven't.

There's little point in trying to speculate what the damage might be, other than to brace ourselves for another increase in contributions, interpreted by most non-actuaries as 'costs'. We don't expect to see anything concrete until May, when the results of the 30 September 2011 valuation should be released. Employers will then be consulted on how best to pay off the inevitable increase in deficit over a respectable period.

The current plan for clearing the deficit that existed at 30 September 2008 is to apply a charge of 7.5% of each employer's scheme salary role at that date and to increase this by 4.7% per annum compound for 15 years from 2010. This means that deficit recovery contributions will double over the period, regardless of any decline (or increase) in membership.

If the Pension Regulator's guidance is adhered to, any new recovery plan will be additional to the existing one, but given the financial pressures that have been experienced by RPs over the last year, it remains to be seen whether or not this will be the case.

On the basis that 'forewarned is forearmed' it is probably worth considering what options might be on the table.

Do nothing

It depends on your starting point but if you can afford to maintain the status quo, once the increased funding requirements are known (which may also affect contributions for future accrual) this would at least put off the need to enter into a consultation process with your employees.

There are many variations within SHPS, from RPs who have kept their original defined benefit (DB) structure open to new entrants, to those who have ceased future DB accrual in favour of the defined contribution (DC) structure that was introduced in 2010 and paying a reduced surcharge of 1.5%. The surcharge itself may well be revisited, as could the 50% concession to those who have adopted the DC plan.

Introduce salary sacrifice

Over the last 18 months or so there has been a considerable increase in companies introducing salary sacrifice facilities for their staff as a cost-effective way to make pension contributions. This has occurred primarily where some form of DC arrangement is in place. More recently we have seen the same approach used with DB schemes, such as the SHPS final salary and CARE benefit structures. Indeed, The Pensions Trust has made it surprisingly easy to operate salary sacrifice alongside 'traditional' contributions.

By 'sacrificing' an amount of salary equal to a person's pension contribution in favour of an equivalent amount being paid into the scheme as an employer's contribution neither party pays national insurance (NI) on the amount sacrificed. As the present SHPS DB schemes are all contracted-out of the state second pension, the amount of personal NI saving will be 10.6% of the contribution for most basic rate taxpayers, or 2% for most higher rate taxpayers. The employer will save 10.4% or 13.8%, depending on a person's level of earnings (all percentages effective from 6 April 2012).

Worthwhile savings could be made by both parties by using salary sacrifice. In the case of employers, this could help to offset increased costs arising from the valuation.

The effectiveness of a salary sacrifice facility is greatly dependent on how well the concept is communicated to staff. Face to face presentations have been found to be considerably more effective than the most well-presented written material, although both are needed in order to ensure that individuals understand the options available to them.

Reduce future benefits (within SHPS)

This may well have been done in 2010 with the advent of lower cost n/80ths final salary and CARE alternatives. The DC option that was introduced in October 2010 might have appeared to offer an attractive home for future contributions although the increase in NI contributions and the loss of certain benefits under the mainstream SHPS would also need to have been considered.

If future service benefits were reduced in 2010, it might be difficult to review the structure again so soon. But three years ago, who could have predicted such instability in the eurozone, the depth of recession and the extent of financial constraints that have been inflicted upon RPs? On this basis, it might again be worth looking at the lower cost options that are available.

One option that has been mooted is to introduce an n/120ths contracted-in final salary scheme. If it does come into being, one wonders just how useful such a scheme might be. Not only would the NI rebates (on earnings between £5,564 and £40,040) be lost, but the pension generated by this would be minimal. The only mitigating factor is that people would start to accrue benefits under the state second pension, which favours lower earners.

Benefits beyond SHPS

It would be possible to offer a lower cost scheme for future new entrants, while maintaining at least some form of active membership of SHPS (DB or DC) so as not to trigger the liability for a Section 75 debt (full buy-out costs; unaffordable for most employers).

Deficit recovery contributions would continue to be payable alongside whatever 'active' element of SHPS is maintained. If another scheme is permitted to run alongside SHPS as a vehicle for new members, the full surcharge (currently 3% but subject to review) would be payable. On the other hand, auto-enrolment may not be far over the horizon, depending on staff numbers, which will also require consideration, so it might be worth 'biting the bullet' and moving to a non- SHPS alternative while some attractive propositions are still available in the market.

Members' contributions

If members were asked to pay more last time around in order to maintain their existing scheme structure, it would be difficult to approach them again so soon. In addition, there could now be a perception among employees that a right has been created to enjoy a certain level of benefits.

Financial assessment

By the end of 2011, all employers who participate in SHPS in any of its guises will have undergone a form of employer covenant assessment. The idea is for The Pensions Trust to establish the ability of employers to meet their future obligations under SHPS. In some cases, this could lead to only lower cost options being available from April 2013, when new funding rates will be in place and the yet-to-bedetermined recovery plan is implemented.

Action

It would be prudent to start considering your options before the results of the valuation are known. This will allow your organisation to develop a strategy to cope with the range of possible outcomes before you get funnelled into what we expect will be The Pension Trusts' prescribed timetable for decisions and processes.

CHARITY LAW UPDATE

By Adrian Wild

What are the charity law changes which will impact your organisation?

Certain aspects of charity law apply to all RPs having charitable status, while RPs which are registered with the Charity Commission must comply with the entirety of charity law.¹ Therefore, the recent and potential changes outlined here will be of interest to the majority of RPs.

The Charities Act 2006 (the Act), which applies in England and Wales, received Royal Assent on 8 November 2006. Since that date there have been 17 related Statutory Instruments either enacting various parts of the Act or amending the Act. Yet despite this storm of change, the Act has yet to be fully enacted, with sections relating to charitable incorporated organisations (CIOs) and the licensing regime for charitable fundraising yet to come into effect. Some smaller RPs are constituted as charitable trusts and might – in the future – find CIO an attractive legal form. For other RPs, CIOs may represent an alternative to a company limited by guarantee or an industrial and provident society.

The Act has been criticised. It created the Charity Tribunal, with the aim of simplifying the process for appealing against Charity Commission rulings or having Charity Commission decisions reviewed. While this is a wholly laudable aim, there is concern that the Tribunal's scope of work is too narrow and that this limits its effectiveness. The Register of Charity Mergers was created so that there was a record of those charities which cease to exist simply through merging with another. The idea was that legacies due to a merged charity would be able to be received by the successor charity; however, due to the way in which most wills are written, this has proved less effective than expected.

The Charity Commission guidance on public benefit, written in accordance with the dictates of the Act, has also been subject to review by the courts. As a consequence, the Commission was asked to review and revise some of its guidance. However, ultimately some of the guidance was quashed by the courts. We do not expect these changes to impact on RPs; whether the changes will have any practical effect in the wider charitable sector remains to be seen.

Uniquely, the Act also contained a requirement that the operation of the Act should be reviewed, the condition being that within five years of receiving Royal Assent a reviewer be appointed for this purpose. The Government has appointed Lord Hodgson to lead the review. Lord Hodgson is president of the National Council for Voluntary Organisations and also led the Big Society Deregulation Taskforce (the Government-commissioned review of red tape in the voluntary sector). The key questions that the review is tasked with answering are:

• what is a charity and what are the roles of charities?
• what do charities need to have/be able to do in order to be able to deliver those roles?
• what should the legal framework for charities look like in order to meet those needs (as far as possible)?

These questions are supplemented by a number of other matters. The review has called for evidence on a range of issues,² including the following which are relevant to RPs.

• Exempt charities – currently charitable I&P RPs are exempt registration with the Charity Commission, but no final decision has been made as to whether another regulator will be appointed or whether such RPs will need to register with the Commission. RPs might wish to make comment as to whether they consider it desirable for a lead regulator to be appointed or not.
• Social investment – significant sums of money are available for social investment, but there are perceived barriers which reduce the sums available. The review is interested in learning how the legislative framework impacts on social investment and how any issues might be addressed.
• Trustees – there is a perception that the recruitment and retention of trustees is problematic. Some RPs now pay some or all of their board members and the impact of this on recruitment and retention, and an assessment of the cost/benefits would be of interest to the review.

The closing date for responses is 16 April 2012.

The review is scheduled to be delivered to the Minister in the summer of this year and then laid before Parliament in the form of a report. Quite what the next steps are will depend on the recommendations. However, based on past form, we should not expect new legislation any time soon.

Ironically, while Lord Hodgson was starting his review of the 2006 Act, the Charities Act 2011 was wending its way through the House of Lords and the House of Commons. The Act received Royal Assent on 14 December 2011 and will be enacted on 14 March 2012. The 2011 Act consolidates most of the extant English and Welsh charity law into one coherent Act. Given that there have been over 120 changes to the 1993 Act (the primary legislation), this Act is much needed. (However, it should be noted that elements of the Charities Acts 1992 and 2006 will remain in force.)

Finally, further parts of the Charities Act (Northern Ireland) 2008 have been enacted in the year. All Northern Ireland charities registered with HMRC will be automatically registered with the Charity Commission for Northern Ireland, and other charities will have to register themselves if they meet the criteria. However, the requirements for Scottish and English/Welsh charities which operate in Northern Ireland to register have yet to come into force. Interestingly, as part of his review, Lord Hodgson is charged with reviewing the idea of having a UK-wide definition of charity and ways in which the burdens of dual (or even triple) registration can be eased.

Our advice is for each association to summarise the financial instruments it has in place and then assess which may fall into the 'other' category. You will then need to consider carefully what the accounting treatment will be and whether this is potentially damaging to the association.

We will be writing further articles on this subject in the future but professional advice is almost certainly going to be wise, even if you think your financial instruments only fall into the 'basic' category.

Footnotes

1. While most RPs have charitable status, those which are industrial and provident societies do not need to register with the Charity Commission. However, aspects of charity law apply to such charities.

2 https://update.cabinetoffice.gov.uk/resource-library/charities-act-review-calls-evidence

TAKING ACCOUNT OF CHANGE

HOW WILL CHANGES TO FINANCIAL REPORTING AFFECT RP'S?

By Jonathan Pryor

An outline of the forthcoming changes to financial reporting and how these may impact housing associations.

On 30 January 2012 the Accounting Standards Board (ASB) published its revised version of future accounting in the UK. The new proposals (covered by financial reporting exposure drafts (FREDs) 46, 47 and 48) are likely to result in three new financial reporting standards (FRSs):

• FRS 100 – application of financial reporting requirements
• FRS 101 – reduced disclosure Framework
• FRS 102 – the financial reporting standard applicable in the UK and Republic of Ireland (the replacement for the previously proposed financial reporting standard for medium-sized entities (FRSME)).

The ASB has retained its original vision of combining all the requirements for financial reporting into one standard for most entities based on the international financial reporting standard (IFRS) for small to medium-sized entities, but has responded to the views of consultees in permitting more choice on accounting treatment than the IFRS equivalent. From the housing association perspective, there are some considerable improvements. These include:

• the option to use valuations in relation to housing properties
• the option to capitalise interest on development of fixed assets
• the ability to amortise grants relating to assets over the life of the asset in line with the depreciation of the asset
• a delay in application of the new requirements to accounting periods beginning on or after 1 January 2015, in other words for most housing associations to the year ended 31 March 2016.

However, there are still a number of areas where accounting changes will be required. Some of these are presentational (for example the use of the term 'property plant and equipment' in place of 'fixed assets'), others have relatively minor effect (for example the requirement to accrue for 'compensated absences', e.g. untaken holiday entitlements, which is arguably a requirement in UK Generally Accepted Accounting Principles (GAAP) already but not usually complied with), whereas others are potentially very significant. Top of this list are two specific areas where the implications are far reaching and will require planning:

• financial instruments – the requirement to carry some instruments at fair value
• grants relating to assets – the requirement to show these balances within creditors and not net them off fixed assets.

These two areas of change will require considerable analysis and will be covered in lengthier articles in our next edition. However, it is worth emphasising that each housing association will need to invest time in understanding the implications for their overall financial position and loan covenants. The major issue is likely to be relating to volatility and unpredictability with the risk of having to record some financial instruments at fair value with movements in the income and expenditure account. Although there are some solutions to this, in particular the possibility of hedge accounting, the rules relating to this are very complex and require a detailed understanding.

Other areas that we have identified as being of significance for the housing association sector generally are as follows.

• Prior period errors require correction as a prior year adjustment when material, as opposed to the current requirement of when fundamental.
• The costs included within stock items such as assets held or produced for sale will be renamed inventories and are calculated slightly differently.
• Movements in valuation of investment properties are taken through the income and expenditure account.
• The requirements in relation to component accounting are similar. However, where expenditure is capitalised on the basis of it leading to incremental future benefits, unlike with the equivalent in FRS 15 the exposure draft requires the write-off of part of the existing asset to reflect the element replaced.
• Deferred tax needs to be provided on revalued properties based on the difference between the carrying value and the cost of the asset for tax purposes. This would potentially lead to a substantial reduction in net assets for those entities with a substantial revaluation reserve.
• There are differences in the way in which DB pension scheme assets and liabilities are measured. This is likely to have the effect of increasing the costs recorded in the income and expenditure account for schemes in deficit compared to the current FRS 17 methodology.
• Accounting for leases is likely to be problematic, particularly in relation to shared ownership properties. However, precisely how the principles set out in the FRED will be implemented in the housing association sector will require further debate.
• Land options will probably be regarded as financial instruments and therefore be carried at fair value.

CAN YOUR HOUSING ASSOCIATION DEMONSTRATE VALUE FOR MONEY?

By Jackie Oakes

The recent Tenant Services Authority consultation on the future of regulation for the sector proposed a number of profound changes to the ways in which the regulator would conduct its role.

Arguably, one of the most far-reaching relates to the significant changes on value for money. It is clear from discussions with a variety of housing associations that there remains some confusion over precisely what these requirements are intended to be and how the regulator will assess compliance. However, what is clear is that under the current proposals there is likely to be a significant increase in focus on this area combined with a much higher level of reporting, seeking to demonstrate to stakeholders that good value for money is being achieved.

There is a danger that this change will result in a free for all for consultants advising associations on report writing, rather than focusing on the core issue of understanding how value for money is or is not being achieved within the association. There is also a danger that focus is placed on cost rather than value, although the commentary in the consultation papers is in our view very clear that it is the latter that matters.

Quite a lot could change as a result of the consultation. There is also time for proper reflection. However, the importance of this area to the Tenant Services Authority/ Homes & Communities Agency, and to Government more generally, is hard to over-emphasise. This will therefore require considerable focus by associations in the months to come and should be high on the list of priorities for each finance director, chief executive and board. Our advice to RPs in the short term is to focus on understanding the ways in which value for money is achieved within their association rather than on how best to report progress on this key issue.

VAT UPDATE

By John Rainsford

VAT on postal charges

Many charities and not-for-profit organisations will be affected by the introduction of VAT on a number of Royal Mail postal services from 2 April this year.

Some postal services, including stamped or franked first and second class post, will remain exempt from VAT as they are part of the Royal Mail's universal service obligation. Other postal services subject to regulatory price control will also remain VAT exempt.

However, VAT will be charged from 2 April 2012 on many other postal services, including business collections, Special Delivery" Next Day (on account only) and door to door. A full list of the postal services that are changing their VAT status on 2 April, can be found on the Royal Mail website at the following address: www.royalmail.com/customerservice/ terms-and-conditions/vat-changes.

The addition of 20% VAT on postal services will be a significant cost increase for organisations that cannot reclaim all of their VAT. For those that are partly exempt and able to reclaim a proportion of their VAT costs, it may be an opportune time to review their VAT recovery calculations to try to mitigate the irrecoverable VAT costs.

Charities and other organisations that are not VAT registered, should ensure that they are taking advantage of other measures to minimise the VAT cost of postal campaigns, such as the zero-rating of campaign packs where individual elements might otherwise attract VAT.

Whether or not charities are normally able to reclaim some VAT costs, the changes in April might still involve a bottom-line cost. If you use a franking machine, Royal Mail has said that the services on which VAT will be charged from April can only be purchased through 'smart' franking machines, which will also produce VAT invoices; the VATable services cannot be purchased through older franking machines.

VAT cost sharing exemption

In previous Smith & Williamson publications, we reported that HMRC was in consultation about the implementation of a cost sharing VAT exemption. In the Chancellor's Autumn Statement on 29 November it was announced that legislation will be introduced to implement the cost sharing exemption in 2012.

This exemption will allow groups of eligible organisations, including charities, academy schools, universities, higher education colleges and housing associations, to provide services to each other without generating an irrecoverable VAT cost, provided the services are directly necessary for the consortium member to carry out its exempt and/or non-business activities.

Newly formed cost sharing consortia can apply the VAT exemption from the date when the 2012 Finance Bill receives Royal Assent. HMRC has said that it will publish comprehensive guidance on the conditions and eligibility to use the cost sharing exemption in advance of its legal effect. HMRC has acknowledged that it cannot prevent cost sharing arrangements from being formed prior to the new legislation coming into force because the exemption already exists in EU VAT law. However, HMRC does warn that incorrect implementation of the exemption before it becomes UK law could result in it taking action to recover any VAT that should have been charged, including the charging of penalties.

EFFECTIVE FRAUD RISK STRATEGIES

By David Alexander

The Housing Internal Audit Forum has recently reported that: "Fraud is on the increase as the recession bites."

It's a sad fact that registered providers are not immune to employee fraud, especially in light of the current financial pressures. This is not only because the incidence of fraud is increasing but also when it does occur, boards, bankers and other stakeholders want to know what precautions the directors had taken to prevent or limit the damage. Ignorance of fraud is no defence; it is now recognised as a business risk to be managed in the same way as any other business or financial risk.

So what practical steps can we take to reduce the threat of employee fraud? When fraud happens, how can we mitigate the loss and bolster the confidence of the board of trustees that the CEO is still in control?

The guiding principles for an effective fraud risk strategy are prevention, detection and investigation. In an ideal business world, prevention controls would be strong enough to stop all fraud, but this might also grind the company into the ground due to the sheer bureaucratic burden. Also, past experience has taught us that if a fraudster is sufficiently motivated and can justify his or her action, fraud may happen despite the tightest controls. We therefore need the other two principles: to be able to detect fraud as it is happening; and then investigate it once we have detected it, or as is more likely someone blows the whistle.

These three principles should be linked in a virtual circle where lessons learnt from investigation are used to improve controls, where weaknesses in controls identified during prevention activities lead on to selected detection procedures, which in turn prompt investigations.

Don't think it won't happen to you; rather than waiting for the inevitable, review your anti-fraud procedures now. Here are a few elements every association can easily incorporate into their control environment.

• Fraud risk assessment – understand the fraud risks that you face
• Pre-employment screening – ensure that all staff are appropriately screened before you employ them or before you promote them into a more sensitive role
• Whistleblowing procedure – how do employees report suspicions of fraud?
• Senior management accountability – are responsibilities for fraud prevention understood?
• Audit of employee compliance with policies and procedures – test controls, don't assume they are effective
• Tone at the top – what is senior management's attitude to employee fraud, how do they communicate this attitude to employees?
• Corporate culture – how does the corporate culture support the business' attitude to fraud?

• Fraud awareness training – do staff understand what fraud looks like and the damage it can do to the association?
• Code of conduct – are codes of conduct clearly communicated with employees?
• Disciplinary procedures – are staff clear about the consequences of committing fraud?
• Reporting fraud to the authorities – what is your organisation's attitude to reporting fraud?
• Career counselling – how do you manage your staff's careers?
• Do you have an effective communication system for employee complaints? – by far the most likely avenue of discovering fraud
• Employee participation in own performance goals – do staff feel that have some control over how they are appraised?

Finally, avoid placing excessive rewards and punishments on performance as these can be strong drivers for fraudulent behaviour.

PLANNING AHEAD

By Claire Perrett

The changes to the rules governing pension schemes may have left employees confused about their position.

Maximising higher rate tax relief

With the many alterations made to pension schemes in the last few years, have any of your staff left a DB scheme for a personal pension plan with or without employer contributions? The rules for contributions have undergone continual change in recent times which could leave employees confused.

For the last two years we have had transitional rules that could restrict an individual's contributions to £20,000, £30,000 or £255,000, depending on individual circumstances. From April 2011 the annual allowance for claiming tax relief is a flat £50,000. Planning ahead It will be possible to carry forward any unused allowance for the following three years. Current contributions are offset first against the current tax year and then against the unused annual allowance from earlier years, taking the earliest first.

For 2011/12 (the first tax year under the new rules) HMRC will apply a notional allowance of £50,000 for the three previous tax years, provided the individual had been a member of a registered pension scheme in those years.

Contributions made to schemes with pension input periods ending in those tax years are offset against this notional allowance, with any remaining allowance being carried forward.

This means that individuals can obtain tax relief on contributions in excess of the annual allowance provided they don't exceed their total earnings. For 2011/12 this means they could potentially obtain tax relief on contributions up to £200,000 (or £250,000 with planning), depending on their contribution history.

Fixed protection claims deadline

The lifetime allowance will be reduced from £1.8m to £1.5m with effect from 6 April 2012. This is an upper limit on the amount of pension and/or lump sum from pension schemes that can benefit from tax relief. Individuals who expect the amount of their pension savings to be more than £1.5m by the time they take their benefits can apply for fixed protection by 5 April 2012.

Certain conditions must be met in order to successfully obtain fixed protection, including not starting a new arrangement (other than accepting a transfer of existing pension rights) and not making further payments into a money purchase arrangement. Other conditions apply for DB arrangements.

Anyone with existing primary or enhanced protection will continue to be unaffected by the reduction in the lifetime allowance.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.