Pre-Budget 2009 Focus on Pensions for Employers (December 2009)
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Chancellor extends pension anti-forestalling rules

In this month’s pre-budget statement the Chancellor announced that the tax legislation restricting pensions tax relief for high earners is to be changed.  Broadly, from 9 December 2009 the following is to apply:

  • to work out if a person qualifies as a ‘high income earner’ their ‘relevant income’ is to include the value of their employer’s contributions to each of their pension schemes
  • if a person’s income is below £130,000 before taking into account any employer contributions then tax relief will not be restricted
  • the special annual allowance and its tax charge is extended to apply to taxpayers with a relevant income of £130,000 or over
  • for someone whose relevant income is between £130,000 and £150,000, only additional pensions savings over and above the individual’s normal regular saving made on or after 9 December 2009 are affected
Consultation on restricted pension tax breaks for high earners

The consultation document regarding proposals to cap tax breaks on pension provision for high earners from 6 April 2011 has now been published.  The proposal is that anyone with a ‘high’ income will have a tax charge on pension provision and includes the following:

  • high-income individuals will be those with both gross income of £150,000 or more and relevant income of £130,000 or more in a tax year
  • any part of an individual's ‘total pension saving amount’ funded by their employer will be included in the calculation of their ‘gross amount’
  • individual's own pension contributions will no longer be deducted from total income when calculating ‘relevant income’
  • there is the possibility that defined benefits are based on cash equivalent transfer value or age-related valuation factors
  • the tax charge will always fall on the individual and normally be collected through self-assessment
  • for those with ‘gross income’ of £150,000 to £179,999 tax charged will be reduced on a tapered basis
Auto-enrolment and personal accounts

The implementation of the 2012 reforms is to be slowed down.  It is unclear exactly how this is to be undertaken as some employers will still have to operate auto-enrolment from October 2012 but the phasing in of the change will be spread over a longer period of time.  An announcement is planned for next year.

Pension short service lump sums

The rates of taxation and levels on which they apply for short service refund lump sums are going to change from 6 April 2010.  Currently the rate is 20% on the first £10,800 of the refund and 40% on the remainder.  This is changing to 20% on the first £20,000 and 50% on the remainder.

The consequences of this change are that some people may have less tax to pay but those with larger funds could face higher tax charges.

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