The restriction of pensions tax relief from April 2011 will apply to those with gross incomes of £150,000 and over, where gross income incorporates all pension contributions, including those funded by an employer. This will be subject to an income floor, so that individuals with pre-tax incomes, excluding employer pension contributions, of less than £130,000 will be unaffected.
The Government has announced that the anti-forestalling measures introduced at Budget 2009 will be extended from 9 December 2009 so that all those with incomes of £130,000 and over will be subject to the special annual allowance.
Marc Hommel, partner and pensions leader, PricewaterhouseCoopers says: “The Government seems to be dismissing the notion that taking higher earners out of workplace pension provision will have dire consequences for employer motivation to provide quality pensions to the rest of the workforce.
“In the weeks following last April’s Budget, over three-quarters of employers said that the Government’s pension tax proposal for higher earners was further reducing companies’ motivation to provide wider workplace pensions, and this has been since borne out in practice by the weekly announcements of closure of existing quality pension schemes. Today’s announcement that employer contributions will now also be included in higher-rate tax relief restrictions for people earning £130,000 or more, together with the associated administrative complexity, will result in further acceleration of scheme closures. “
Henry Denne, head of private clients at PSFM says: “This clarification is useful but will mean that individuals who have incomes of £130,000 or more with substantial employer pension contributions may have assumed they are unaffected by the changes in pensions tax relief are now potentially caught. On the other hand those earning under £130,000 with substantial pension contributions will clearly benefit, although we may find that this is addressed in revised anti-avoidance rules.”
Roger Breeden, principal at Mercer says: “The rules have changed again and keep on changing. The threshold has been brought down so the numbers affected are increasing. This makes long-term decisions and personal financial planning much more complicated for employees and employers. People may be driven away from retirement planning by the increasing complexity and distrust of the system, and making a change to the anti-forestalling regime so far into the tax year is particularly disruptive.”