Pensions – changes to the annual allowance
The annual allowance for tax relief on pensions has been reduced to £50,000 (from £255,000) with effect from 6 April 2011. HMRC have recently published an amended copy of the draft guidance originally published on 14 October 2010.
There will be a three year carry forward rule that allows taxpayers to carry forward unused annual allowance from the last three tax years if they have made pension savings in those years. This means in certain circumstances if pension saving is more than £50,000 taxpayers may not have to pay the annual allowance charge.
This measure also affects the following:
- The method of calculating the amount of pension saving (pension input amounts) for a defined benefits or a cash balance arrangement has changed. There is no change in how you calculate the pension input amount for a money purchase arrangement.
- There will be no blanket exemption from the annual allowance in the year benefits are taken. There will however be an exemption in the case of serious ill health as well as death.
- From 6 April 2011 the exemption from the annual allowance for those with enhanced protection will no longer apply.
- The special annual allowance rules introduced in Finance Act 2009 will be repealed.