John Moret, director of sales and marketing at Suffolk Life says the Budget changes have broken the understanding that provided they did not exceed the annual or lifetime allowance, high earners could make contributions in relation to the previous two years’ tax earnings.
The Budget Notes set out measures for preventing high earners from maximising their pension contributions over the next couple of years in order to take advantage of full tax relief while it is still available.
The Finance Bill 2009 will create a new tax charge that will apply to high earners who “increase their pension savings on or after 22 April 2009 over and above their normal pattern of regular pension savings”, but only if their total pension savings exceed £20,000 in that year.
Moret says: “The prospect of higher rate tax relief on pensions being curtailed had been well trailed. I think most well informed individuals accepted that if introduced sensibly, fairly and gradually this was not unreasonable. I should have known better.
“The phasing in proposals affect anyone deemed to be a high earner retrospectively. This includes anyone who earns £150,000 or more this tax year or in either of the two previous tax years. A-day changes on allowable contributions provided individuals – including those now defined as high earners – with the ability to pre-fund or defer making pension contributions. This was on the understanding that provided they didn’t exceed the annual allowance and didn’t exceed the lifetime allowance there would be no tax charges and the rate at which they funded their pension would be down to them – subject to having adequate earnings.
“That understanding goes out the window with these changes – a high earner who put off funding their pension will be hit whereas those who took early action will be far less affected.”
Budget – Treasury accused of retrospective taxation on high earners’ pensions
