Expected pension contribution changes – our only certainty pre-budget

15th March 2016 by Zoe McLaughlin

Although Chancellor George Osborne has dropped plans to end or alter tax relief on pension contributions in his forthcoming budget, one thing we know for sure will still be happening post 6th April 2016 is the change to the annual allowance and the life time allowance.

The 2015 Summer Budget first announced a tapering of the annual allowance and a reduction in the life time allowance for pension schemes with effect from the 2016/17 tax year.

The Life time allowance

This is the total amount of benefit that can be drawn from a pension scheme whether through lump sums or retirement income without triggering an additional tax charge. From April 2016 this is reduced from £1.25m to £1m.

Annual Allowance

This represents the total employee and employer contributions a member can pay into their scheme in any one year and obtain tax relief. Excess contributions will require the tax relief obtained at source to be repaid and faced with an annual allowance charge.

The annual allowance (AA) currently sits at £40,000 but from 2016/17 this will be tapered for members who have adjusted income over £150,0000 and threshold income over £110,000.

Adjusted income - Total gross plus employers contributions

Threshold income – Total gross income (from all sources)

For every £2 above £150,000, £1 of AA will be lost. This is capped at £30,000 and therefore everyone will receive a minimum AA of £10,000.

Currently the pension input period is guided by the scheme year,  but from 6th April 2016 this will be aligned to the tax year and there are transitional rules

HMRC have provided a useful tool on their website to check if you’ve exceeded this annual allowance, please click here to view this.

If you haven’t considered these changes in detail yet, it  may be helpful to understand how these new rules could potentially impact your staff and  communicate these issues to them,  and possibly even consider  alternative benefit solutions. If you operate a Trust based scheme there may not be scope to change the level of contributions, if you have a contract based scheme, ie a GPP arrangement then it may be worth speaking to your  pension adviser about amending the contract.

If you would like any advice on the tax implications please contact your usual Ensors contact


Author

Zoe McLaughlin

Zoe McLaughlin

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