Pension savings

Most of our clients saving for their retirement do so through one of the money purchase pension schemes – personal pension plans, SIPPs, etc. For 2010/11 the “anti-forestalling rules” apply to many of them, so what are the pension saving limits for high earners?

For 2010/11 “regular” premiums attract tax relief at up to 50% on up to £255,000 of premiums. Regular premiums are those paid at weekly, monthly or quarterly intervals, and at rates which applied before 22 April 2009.

Irregular premiums are either premiums paid at less than quarterly intervals or (in some cases, only) the amount representing any amount by which more frequent premiums exceed the pre-22 April 2009 rate. There are complex rules to calculate the amount of such premiums which will attract tax relief, but very briefly the limit is somewhere between £20,000 and £30,000, reduced by the amount of regular premiums paid. Premiums paid in excess of the limit lose all tax relief – even the 20% relief at source is clawed back.

For 2011/12 new rules have been proposed under which all pension premium relief will be capped at £50,000 of premiums each year. However there is scope to make up for previous shortfalls – using the £50K cap, one can look back to the preceding three years and bring forward “unused relief”, subject to having a “pension input amount” in the relevant year(s).

Note that both rules operate by reference to “pension input periods”. The annual allowance (cap) is applied to the premiums paid in the pension input period(s) ending in the tax year.

The reduction in the lifetime allowance (cap on overall tax-advantaged pension savings) to £1.5 million will apply from 6 April 2012.