TAX NEWS - 2010

UK Tax: Changes in UK pensions relief and provisions

For the high earners?

For those earning in excess of £150,000, the Budget has announced that the existing plans for a high income excess relief charge, which would reduce tax relief from 2010/11 on pensions contributions, are to be shelved. Instead, he will "work with industry on alternative ways of raising the same revenue, potentially by reducing the Annual Allowance". This is a radical policy shift.

The Government's provisional analysis is that the annual allowance for qualifying pension contributions, currently set at £255,000, could be drastically reduced to a level of around £30-£45,000. This may require amendments to other aspects of the existing tax regime. The Government will be consulting on what would be appropriate. The overriding aim is to ensure that the new regime introduced after the consultation will raise at least the same amount of revenue from any clawing back of pension tax relief from high earners raises as the former Government's proposals.

Note that at present no further changes are proposed to the interim "anti-forestalling regime", which currently applies up to and including 5 April 2011 for those earning over £130,000. This is a complex area of planning and advice should be sought at the earliest opportunity.


Compulsory purchase of annuity – age limit change

The Government is to increase the latest age by which members of registered pension schemes have to buy an annuity, or otherwise secure a pension income, from age 75 to age 77. This change will be effective from tax year 2011/12. However, a transitional regime, from 21st June will permit those who have not already reached age 75 to defer receipt of their benefits to age 77. Detail of its changes in this area will follow after government consultation.

State Pensions affecting all would-be pensioners

The Emergency Budget confirmed that the rate of the basic state pension will be re-linked to earnings from April 2011 and will rise each year in line with the higher of earnings, prices, or 2.5% per annum. The State Pension age increase will be accelerated and brought forward to 2016.


In summary

The emergency Budget flags key areas of the pension regime on which the new administration wishes to stamp its mark. Trustees and employers will await with some interest the detail of the promised consultations on the main areas of change and for individuals the requirement for ongoing advice is, as always, crucial to interpreting and understanding the rules and implications.