Pensions: yet more changes from April 2011

CBW's Andy White gets to grips with the revised pensions tax relief reforms that finally come into effect on 6 April.

Having simplified pensions in 2006, further tinkering by the previous government introduced yet more complexities into the system. A welcome initiative by the present administration has swept away some rule changes that were due to take effect this April and replaced them with a set of laws that are more logical and straightforward.

Nevertheless, significant changes are due to take place to both the tax relief on contributions and, perhaps more interestingly, the options post-retirement.

The current contribution limits are a mish-mash of the previous regime introduced in 2006 and the anti-forestalling measures introduced by a government that was petrified of people taking steps to circumvent the planned new rules. In the event, these rules have been altered significantly by the present administration. As a result, we have the odd situation where the anti-forestalling rules are not really targeted towards any possible abuse.

From 6 April this year, all that will change. The current annual allowance of £255,000 will be slashed to £50,000. However, higher rate tax relief will remain. In what many will see as a backward move towards complexity, there is to be a carry forward provision where any unused annual allowance can be carried forward for three years.

The lifetime allowance will fall from £1.8m to £1.5m but this move is being delayed for a year until April 2012. There will also be provisions allowing individuals to preserve the £1.8m limit but on condition that no further contributions are made.

These rule changes introduce some complexities into the timing of contributions. This is particularly the case for individuals considering making a significant additional contribution.

Perhaps, more interestingly, there will also be significant changes to the rules relating to the drawing of benefit. The possibilities here are considerable.

Andy White is a tax partner at accountancy firm CBW. He can be contacted at andy.white@cbw.co.uk, or on Tel: 020 7309 3800.

Continued...