UK - Proposed amendments to the Finance Bill 2009 have been introduced by Conservative MPs to limit the impact of anti-forestalling measures ahead of the reduction of higher rate tax relief on pension contributions from 2011.

The changes tabled by the three Shadow Treasury ministers - Greg Hands, David Gauke and Mark Hoban - follow recommendations outlined by Rowanmoor Pensions last month in a letter to Alistair Darling, Chancellor of the Exchequer, which was also forwarded to the shadow chancellors of the other main political parties.

Amendments put forward by the Conservative Party, and scheduled to be discussed on Thursday 18 June include redefining the term 'regular pensions savings' to mean the amount paid into a pension on an annual rather than quarterly basis and to recommend contributions are calculated as an average of the last three years.

The original thinking behind Rowanmoor's suggestions was that self-employed workers and shareholding directors tend to wait until the end of the year before making pension contributions to take into account cashflow requirements and profits, which unfairly restricts the savings ability of these workers. 

David Seaton, director of Rowanmoor Pensions, suggested the proposed amendments would go "some way towards lifting the punitive anti-forestalling measures as outlined in the draft legislation".

However, he added: "I still believe Section 35 [the restriction of tax relief] is wholly unnecessary and limiting tax relief by reducing the annual allowance would be far preferable and significantly reduce the complexity now proposed. If that is still not acceptable then the proposed amendments, if agreed, will reduce the unfairness of the legislation and permit reasonable pensions savings for all."

The National Association of Pension Funds (NAPF) has also urged MPs to rethink the changes to tax relief as it claimed the changes will have a negative impact on saving and will still impact modest earners despite being aimed at those earning over £150,000 (€177,000) a year.

The NAPF told the House of Lords Economic Affairs Sub-Committee on the Finance Bill last month that the changes not only break the tax simplification framework introduced in 2006 but could be seen as the first step to introducing the same changes for lower earners. (See earlier IPE article: Tax relief cut seen as 'thin end of wedge')

Joanne Segars, chief executive of the NAPF, said: "The Budget changes send out the wrong messages on pension saving. The government must think again about the wider impact of the new measures as the changes are likely to affect more than just top-rate tax payers."

"The government's proposals break a long established principle tax policy in this country and the constant instability in legislation does nothing to help rebuild badly needed confidence in pensions," she added.

If you have any comments you would like to add to this or any other story, contact Nyree Stewart on + 44 (0)20 7261 4618 or email nyree.stewart@ipe.com

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