Changes to pension funding rules announced

Posted on October 14th, 2010 | Categories - Financial News, Pensions, Retirement

The Treasury has announced that the maximum an individual can invest in a pension and receive tax relief will be reduced from £255,000 to just £50,000 from April 2011.

It was also announced that the maximum balance which can be held in a pension without an onerous tax charge being levied, will also be reduced to £1.5m from £1.8m. This change will take place from April 2012.

The Treasury expect the changes to effect 100,000 individuals, 80% of whom earn in excess of £100,000 per annum. It is anticipated that the changes will ultimately raise £4bn a year.

Mark Hoban, financial secretary to the Treasury said “‘We have abandoned the previous government’s complex proposals and developed a solution that will help to tackle the deficit but not hit those on low and moderate incomes. We have taken a tough but fair decision”.

In a further change those wishing to pay one off contributions of more than the new £50,000 allowance will be allowed to offset these against unused allowances from previous years.

The Association of British Insurers welcomed the move to set the annual allowance at £50,000. ‘This is a much more practical way to incentivise pension saving through a simple, easy to understand system compared to the overly complicated proposals of the previous government to gradually lose all tax relief after £150,000 of income,’ said Maggie Craig, director general of the ABI.

Higher rate tax payers will continue to receive tax relief at the same rate as they pay income tax.

Leave a Reply