Pension schemes refund charges
New legislation came into force on 24 March 2010 which changes the amount of pension tax relief available on short service refund charges. A short service refund charge is made when a pension scheme makes a repayment of pension contributions to a scheme member with less than two years service. The charge is intended to negate the tax relief on the initial contributions.
The legislation was necessary because of the new 50% income tax rate which comes into effect from 1 April 2010 for individuals earning more than £150,000. To reflect this change the legislation changes the rates of the short service refund charge to 20% on the first £20,000 (from £10,800) and to 50% (was 40%) on amounts over this limit for refunds made on or after 6 April 2010.