The Finance Act 2011 brought in provisions to restrict higher-rate tax relief on pension contributions. The key changes were: 

• The Annual Allowance reduced from £255,000 to £50,000 from 6 April 2011.
• The Lifetime Allowance reduced from £1.8mn to £1.5mn from 6 April 2012.
• Unused Annual Allowance available to be carried forward for up to 3 years.

The carry forward of unused Annual Allowance is particularly helpful and will assist to smooth the impact of irregular pension patterns for the self-employed and owner managed companies with variable contribution levels into personal pension plans. It will also assist with spikes in benefits under final salary schemes as a result of substantial pay increases on promotion. To be eligible for the carry forward however, the individual must have been a member of a pension scheme in the relevant year even if they did not pay any contributions into the scheme in that year.

The changes in the rules will be fairly straightforward for individuals saving for pensions through personal pensions or other money-purchase schemes, albeit more restrictive than at present. It is more complex for those in defined benefit or final salary schemes. These individuals will have to be provided with information by their employer or pension scheme trustees, to enable them calculate whether they are within the Annual Allowance.

For GPs and Dentists, NHS employers have to send the relevant information to NHS Pensions by 6 July after the end of a tax year. NHS Pensions then have to issue a statement to the individual by 6 October but only if the increase in benefits exceeds the £50,000 limit. So NHS staff are going to have to request information as to the balance of unused allowances.Where contributions are paid or benefits increase in excess of the allowance, you must report this on your Tax return and tax will be payable at your marginal rate of tax.

If you think you may be affected by these changes, seek professional advice to review your pension situation and plan for the future.

February 2012