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Tax Rule Changes For Pensions 2011

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Stop Press - 2011 Pension Tax Rules 

The much anticipated changes for tax relief on pension provision from 6 April 2011 have been announced by HMRC. 

The good news is that tax relief on personal contributions to registered pension schemes will continue to be available at the individual's highest marginal tax rate. There are no changes to way tax relief is provided on pension contributions by companies. 

Annual Allowance 

  • The annual allowance will be reduced to £50,000 from the current level of £255,000 from 6 April 2011. This will be a fixed amount but it might be indexed in the future.
  • Any excess provision can be offset against any unused allowance from the previous 3 tax years, as long as the individual was a member of a registered pension scheme for those 3 years.
  • The current exemption to pay unlimited contributions in the year of retirement will be removed.
  • The fixed factor for valuing defined benefit accruals to test against the annual exemption will be 16:1.
  • Any contributions paid that exceed the annual allowance will be taxed on a variable charge basis of up to 50% designed to cancel out any income tax relief on contributions made in excess of the annual allowance.

Lifetime Allowance 

  • The lifetime allowance will be reduced to £1.5m from the current level of £1.8m probably with effect from 6 April 2012. 

Who Will Be Most Affected? 

  • Anyone planning to make significant pension contributions over the next few years.
  • Higher earners in defined benefit schemes - they could be charged up to 50% on contributions deemed to be made including employer contributions.
  • Those whose pension fund could be more than £1.5m from 2012. 

What Should You Do? 

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