New Restrictions on pension Contributions for "High Earners
Anti Forestalling Update - Easement for pension switches and transfers
As part of the 2009 Budget, the Government announced restrictions on tax
relief for high earners which was to come into force in 2011. In the interim,
new rules known as 'anti forestalling' regulations were immediately put
in place to stop people from Making "excess" pension contributions
in the run up to the long term rules coming into force.
These anti-forestalling rules are aimed at those high earning individuals
who have 'relevant income' over £130,000 in the current or previous
2 tax years. If so, their higher rate tax relief will be limited to a Special
Annual Allowance (SAA) amount of between £20,000 - £30,000,
with excess contributions being subject to a 20% tax charge. There are numerous
situations where the individual can maintain protection against these tax
charges and full details can be provided on request.
Long awaited changes to the above rules were finally released on 25th February
2010 in the form of a Statutory Instrument. This new order came into effect
on 19th March 2010 although it will have retrospective effect from 22nd
April 2009.
In brief, the order:
- Ensures that contributions made by an individual who changes pension provider, due to one of the reasons provided for; and then carries forward exactly the same pension level of funding, commencing within 3 months of ceasing to be an active member of the old scheme; will continue to be protected. This applies where the switch or transfer relates to monies being redirected to another money purchase scheme which is either an occupational scheme, a public service scheme, or a GPP. As such, this means most pension switches/transfers will no longer lose protection
- Ensures that the rules applying to the SAA charge provide continuing protection where a person leaves a pension scheme and joins a new scheme on exactly the same terms and provides further protection for those who had set up arrangements on or before 22 April 2009.
- Provides protection for certain contributions that an individual or an individual's employer was contractually committed to at 22 April 2009 but which had not actually commenced on that date.
- It also amends the legislation to provide protection for certain lump sum contributions made on 22 April 2009.
Please note, caution is required presently until all of the details are
fully understood. Further guidance will forwarded if requested when available.
In the meantime, the link below takes you to the new Statutory Instrument:-
http://www.opsi.gov.uk/si/si2010/uksi_20100429_en_1
