Simpler pension rules

The new coalition Government indicated that it is committed to simplifying pension schemes and granting tax relief on contributions paid. Although subject to possible further amendments, the most significant rule changes are:

Permitted contributions
The annual allowance (the amount that an individual can pay to a registered pension scheme) will reduce from 6 April 2011 from £255,000 to £50,000. At the same time, the current complex anti-forestalling measures applicable for high earners will cease. From 6 April 2011, full tax relief will be granted at the person’s highest marginal tax rate.

Carry forward of unused annual allowances
From 6 April 2011, anyone who has not used their full annual allowance in any tax year can carry it forward for up to 3 years. So, if someone makes a contribution of £40,000 in 2011/12, £50,000 in 2012/13 and £60,000 in 2013/14, they could make a contribution of £60,000 in 2014/15 and get full tax relief on the £60,000. For years prior to 2011/12, the annual allowance for this carry forward will be £50,000.

Annual allowance lifetime allowance LTA
The capitalised value of an individual’s pension benefits from all sources will reduce from £1.8M to £1.5M from 6 April 2012. However, the Government says that it “intends to design a protection regime that supports those individuals who have already made pension savings decisions based on the current level of the LTA”. It appears that sensible provision will be made for those who currently have more than £1.5M (and less than £1.8M) together with those who previously elected for primary or enhanced protection so that they will not be fiscally penalised by the reduction in the LTA.

Removal of requirement to take benefits by age 75
New rules impose no age limit on annuitising or leaving income drawdown. Tax free cash may be taken at whatever age you decide to start taking benefits. Until the new rules come into force, the age limit for taking benefits has been temporarily raised to 77.