Pensions Forestalling: Concessions from the Government

The ABI met the Financial Secretary, Stephen Timms, and the new Exchequer Secretary, Sarah McCarthy-Fry, last week to discuss the pensions anti-forestalling rules.

 Following that meeting the Government will make concessions to remove some of the unfairness from the rules. In particular, the situation will be improved for those who have previously made their pension contributions annually, for instance from bonuses. Those who do not have regular quarterly or monthly contribution were to be limited to receiving full tax relief on only the first £20,000 of contributions. The Government has tabled an amendment which will allow them to now pay the average of their last three years contributions or £30,000, whichever is the smaller.

 So:

If someone has been paying 25K, for the last 3 years then they can now pay £25K in each of the next two years and get full relief, whereas they would previously have faced a £1,000 tax charge.
If someone has been paying 35K, for the last 3 years then they will only get full relief on the first £30K in the next two years but this is £10,000 more than previously and a £2,000 tax saving.

The Government has tabled an amendment to the Finance Bill to this effect.

 Stephen Timms has also asked HMRC to continue working on finding a resolution to the issues that arise on a change of pension provider and for cases where a contract was agreed before the 2009 Budget but payment was not due to be made until after Budget day. The ABI have also spoken with HMRC who are keen to progress these issues and bring certainty as soon as possible.

 Whilst not a perfect solution this is progress and is to be welcomed.

 We will keep you informed of any further updates on this issue.