UK - Government amendments to anti-forestalling proposals ahead of the restriction of higher rate tax relief in 2011 have addressed some concerns held by pensions experts, though officials warn yet more needs to be done.
Three Conservative MPs tabled amendments - initially proposed by Rowanmoor Pensions - in June to change the definition of regular pension savings to an annual basis rather than quarterly and to recommend contributions are calculated as an average of the last three years with a ‘special allowance’ limit - for receiving full tax relief - to be raised from £20,000 to £50,000 (€23,220-58,058). (See earlier IPE article: Tories table pension tax relief amendments)
The amendments were put forward in an attempt to reduce the impact on self-employed members who tended to make pension contributions at the year-end, or those looking to make one-off contributions to their pensions ahead of retirement.
But in the latest amendment paper to the Finance Bill 2009, published at the end of last week, Alistair Darling, chancellor of the exchequer, included an amendment for an “increased special annual allowance” from £20,000 to £30,000.
This is applicable to the “mean” pension contributions of the last three tax years - 2006-07, 2007-08 and 2008-09 - so if the ‘mean’ figure is less than £30,000 the tax relief allowance is set at that level, and if the contributions exceed £30,000 the member would receive tax relief up to £30,000.
However, Nigel Peaple, director of policy at the National Association of Pension Funds (NAPF), said while the changes had “addressed some of our concerns regarding the “anti-forestalling” regime” the whole issue of changing tax relief still raises concerns.
He said: “Adopting a more flexible approach to existing contribution agreements and to “irregular” contributions will make a real difference to some companies and individuals. However, the NAPF remains deeply concerned about the government’s plans to change tax relief for pensions. We need Ministers to listen on this too.”
Peter Vipond, director of financial regulation at the Association of British Insurers (ABI), admitted the amendments are “not a perfect solution to the annual payment issue” but stressed the changes are progress and the organisation intends to “press for further relief for unfair cases to be dealt with through regulations”.
The ABI added it maintains the changes in pensions tax announced in the Budget were a “retrograde and misguided step to take”, and it is continuing discussions with the government over the proposed rules scheduled to take effect from April 2011.
Standard Life pointed out that under the amendments a high income individual contributing £35,000, £40,000 and £25,000 in the three relevant tax years averages £33,333, so it would receive full tax relief on £30,000 of this for 2009/10 and 2010/11, while someone who paid in £35,000, £25,000 and £20,000 to average £26,667 would be protected for the full amount as it is less than £30,000.
But John Lawson, head of pensions policy at the UK insurer, claimed: “By raising the limit to £30,000, the government has made only the meagrest of concessions to the self-employed and small business owners most affected by these proposals.”
He argued that members of company schemes that pay monthly pension contributions are “treated more favourably because they can protect their full historic contribution level without limit”, and warned the amendments also fail to cater for employees moving employers - as protection only continues if they join a group scheme with 20 people or more with the same level of benefit accrual - or if they switch pension providers for individual pensions.
Lawson added: “People should have the freedom to choose the best pension in the market for them or move to a small employer with less than 20 staff, without losing protection. Penalising people in this way goes directly against the principles of free market competition in the provision of services and labour. Keeping these restrictions in place amounts to a stealth tax on free choice.”
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