For pension contributions for an input period ending after 5 April 2011 the limit on tax allowable inputs to a registered pension scheme will be cut to £50,000. Currently it can be up to £355,000, subject to the forestalling regulations.
When considering defined benefit schemes (the accumulation of pension benefits works differently to those of a contribution scheme) the factor to be used in valuing the inputs increases from 10 to 16.
The new annual £50,000 limit will be increased by any unused allowance for the three preceding years provided the individual was then a member of a registered pension scheme. Unused allowances for 2008/09, 2009/10 and 2010/11 can be carried forward to 2011/12, but, for this purpose only, the unused amount for any of those years is computed under post-2010/11 rules. Therefore, it is assumed that the annual allowance was only £50,000 for each of 2008/09, 2009/10 and 2010/11, and pension input amounts for those years are recalculated as if the new rules had already been in place.
In short even if you are not in a position now to make contributions to a scheme because of the current economic climate there is a benefit in setting up a scheme, if you do not already have one, to protect the unused relief allowance to be used in future years. OK £50,000 is still a lot of money for most of us but why not keep your options open.
The multiple to be used in valuing inputs to a defined benefits scheme is to be 10 for the three years ending 5 April 2011.
Where these limits are exceed there will be an annual allowance charge, the charge will be computed as if the excess pension savings were part of the individual's taxable income and as if they formed the top slice of that income.
While being a member of a defined benefit scheme is far from the norm there are still many individuals who are entitled to this benefit. For these people there can be some unforeseen consequences. For example:
John gets promotion and an increase in his pay from £70,000 to £80,000 a year. He has accrued 20 years of pensionable service (on a 60th scheme) so his pension fund at the beginning of the pension input period is 20/60 x £70,000 x 16 = £373,333. This is increased by the change in the consumer price index, say 3%, to £384,533. The closing value is 21/60 x £80,000 x 16 = £448,000. The increase of £63,467 exceeds £50,000 so John will have a tax liability (assuming he is a 40% taxpayer) of 40% of £13,467 = £5,386.
For information the pension input periods of a registered pension scheme end either on each anniversary of its commencement or, if a date prior to the first anniversary of its commencement has been nominated, on each anniversary of that date.
When considering defined benefit schemes (the accumulation of pension benefits works differently to those of a contribution scheme) the factor to be used in valuing the inputs increases from 10 to 16.
The new annual £50,000 limit will be increased by any unused allowance for the three preceding years provided the individual was then a member of a registered pension scheme. Unused allowances for 2008/09, 2009/10 and 2010/11 can be carried forward to 2011/12, but, for this purpose only, the unused amount for any of those years is computed under post-2010/11 rules. Therefore, it is assumed that the annual allowance was only £50,000 for each of 2008/09, 2009/10 and 2010/11, and pension input amounts for those years are recalculated as if the new rules had already been in place.
In short even if you are not in a position now to make contributions to a scheme because of the current economic climate there is a benefit in setting up a scheme, if you do not already have one, to protect the unused relief allowance to be used in future years. OK £50,000 is still a lot of money for most of us but why not keep your options open.
The multiple to be used in valuing inputs to a defined benefits scheme is to be 10 for the three years ending 5 April 2011.
Where these limits are exceed there will be an annual allowance charge, the charge will be computed as if the excess pension savings were part of the individual's taxable income and as if they formed the top slice of that income.
While being a member of a defined benefit scheme is far from the norm there are still many individuals who are entitled to this benefit. For these people there can be some unforeseen consequences. For example:
John gets promotion and an increase in his pay from £70,000 to £80,000 a year. He has accrued 20 years of pensionable service (on a 60th scheme) so his pension fund at the beginning of the pension input period is 20/60 x £70,000 x 16 = £373,333. This is increased by the change in the consumer price index, say 3%, to £384,533. The closing value is 21/60 x £80,000 x 16 = £448,000. The increase of £63,467 exceeds £50,000 so John will have a tax liability (assuming he is a 40% taxpayer) of 40% of £13,467 = £5,386.
For information the pension input periods of a registered pension scheme end either on each anniversary of its commencement or, if a date prior to the first anniversary of its commencement has been nominated, on each anniversary of that date.
