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Budget 2009 - Pensions Aspects

New rules set out in the Government’s Budget 2009 could lead to a significant rise in tax bills for high earners (with income over £100,000). Individuals with income over £100,000 pa will need to carefully consider the impact of these changes on their retirement planning. Companies employing high earners should look at whether the pension aspects of remuneration packages will be rendered unattractive by tax implications.

In brief, the changes include:

·         From April 2010, a 50% rate of income tax will apply for income over £150,000. The individual Personal Allowance (on which no income tax is paid) will be restricted for individuals with taxable income over £100,000.

·         From April 2011, tax-relief on pension savings will be restricted to the basic rate of income tax (currently 20%) for individuals with taxable income over £180,000. Relief will be tapered (from 50% to 20%) where taxable income is between £150,000 and £180,000.

·         The restriction on tax relief will extend to employer contributions (to a money purchase scheme or personal pension arrangement), which will therefore incur an effective income tax charge of 30% (50% income tax less 20% tax relief). The Government will consult in due course on how to determine a consistent approach for final salary pension schemes.

·         ‘Anti-forestalling’ measures have been put in place, with immediate effect, to claw back tax-relief where individuals who earn over £150,000 make additional contributions or accrue additional benefits (in addition to their usual pattern) before the tax-relief changes come in. A ‘special annual allowance’ of £20,000 will apply where contributions or benefit accrual are increased beyond “normal, ongoing regular pension saving”.

Further details on the pensions aspects of Budget 2009 can be found in our information sheet below:

Related Documents
Budget 2009 - Pensions Aspects (94.85 KB, .pdf)