Pensions: The case so far

Chancellor Osborne’s emergency budget largely left the issue of pensions untouched, for now.

Contributions made by individuals will continue, in most cases, to receive tax relief at marginal rates of Income Tax up to 100% of earnings.

Contributions can be made on behalf of employees by employers in excess of earnings if justifiable as remuneration although there are complex interim restrictions for higher earners.

Broadly these restrict higher rate Income Tax relievable investment made by or on behalf of individuals to no more than �30,000 this year unless contributions have been made regularly (in HMRC terms this means at least quarterly) in excess of this figure starting before April 22, 2009.

There is a further tax implication for pension contributions made on behalf of lower earners where it is in excess of �255,000, although the individuals who may be affected by this are likely to be extremely rare.

It had been mooted that from 2011/12 the interim measures would be replaced with a gradual loss of higher rate relief for those with taxable income in excess of �150,000, with all higher rate relief lost for those receiving more than �180,000 p.a.

Balancing the long-term common sense need to encourage longer term savings with pragmatic ease of administration and policing, it is now stated that higher rate relief will be available but is likely to be limited to between �30,000 and �45,000 per individual. In addition, the announcement that the age after which you could incur the potentially draconian tax penalty for not purchasing an annuity with a pension fund (which can be as much as 82%) is to be increased from age 75 to 77 is indicative that this area is to be reassessed.

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The most significant issue politically was reserved for State Pensions. The good news is that increases to State Pensions will be linked to the greater of: 2.5%, the Retail Prices Index or, the National Average Earning Index. The bad news is that the Government intend to accelerate the increase in the State Pension age to age 66.

It is clear that increases in life expectancy are causing problems for the Government to budget for the cost of State provision. Encouragement needs to be given to individuals and business leaders to promote private solutions. Some will come in the form of protected tax relief coupled with the potential for compunction as we approach automatic employer sponsored pensions scheduled for 2012 and beyond.

This information is given by way of general guidance only, and no action should be taken solely on the basis of the information contained herein. No liability is accepted by the firm for any actions taken without seeking appropriate professional advice.