Good news for pension tax relief
Well, you all know the news by now, the new Annual Allowance for tax relief on pension contributions will be £50,000. Good news or bad news? Well, I think it's very good news for 4 big reasons:
- The figure is £50,000, not £40,000 as expected, or lower as we might have feared
- It gets full tax relief, not the 40% limit which was being suggested
- A big plus is the ability to carry forward unused relief from the previous 3 years
- Above all, the new rules are simple
Some will grumble that the £50,000 figure is much less than the previous £255,000, but it's interesting to look at the history books. Under the old rules when I was still in short trousers, pensions could be 2/3rds uncapped salary and funds of £100m or more for a single member were possible. Then we had the earnings cap of £60,000 in 1989 and a basic personal pension contribution limit of 17.5% of this cap made the current £50,000 look very generous. Then A-Day pushed the figure up again to the £255,000 we have today. What I'm saying here is that the amount you could put into a pension scheme has swung wildly over the years and the new figure looks reasonable in this context.
The reduction in the Lifetime Allowance is less welcome, it adds more complication to the protection rules and I wonder how much benefit to the government it really is. Planning will be needed for those affected by it, and we are well placed to help.
A few doors have been closed, Pension Input Periods cannot be manipulated ahead of next April and ERFBS are, in the government's rules, to be made "less attractive than other forms of remuneration". There are still complications around the accrual of benefits in defined benefit schemes as well, another nail in the coffin for DB schemes?
Good news though, the hope now is that they will leave it alone for the future. Next stop the new benefit drawdown rules...........................
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