The government announced a number of tax legislation changes on 14 October 2010. The key points may be summarised as follows:

ANNUAL ALLOWANCE:
With effect from 6 April 2011 the annual contribution allowance will be reduced from £255,000 to £50,000. This new limit will take immediate effect. Contributions paid prior to the 14 October 2010 will be unaffected by the new rules.

Any employer pension contributions in excess of the new annual allowance rules will be subject to marginal rate income tax at the employee’s highest rate. This will have significant consequences for some Final salary / Defined Benefit pension scheme members.

LIFETIME ALLOWANCE:
This will be reduced from £1.8 million to £1.5 million with effect from 6 April 2012. There is no suggestion that this limit will be indexed in future.

TAX RELIEF ON PENSION CONTRIBUTIONS:
Tax relief at the individual’s marginal rate of income tax (up to 50%) will be available in respect of pension contributions up to the annual allowance threshold.

CARRY FORWARD OF UNUSED ANNUAL ALLOWANCE:
With effect from 6 April 2011, it will be possible to carry forward any unused annual allowance by up to three years. The facility could be used to catch up on pension funding with up to £200,000 with full income tax relief.

PROVISION TO UNWIND PENSION SAVINGS:
The government will consult further on how this might work in practice.

ANTI-AVOIDANCE RULES:
The government is committed to introduce anti-avoidance rules when necessary.

The notes above are not exhaustive and no action should be taken without taking personal financial advice. Please contact Eric Norman-Walker or your financial planning manager if you would like to discuss how these new measures might affect your retirement income funding.

For further information, please contact:
Eric Norman-Walker
T: +44 (0)1784 497178
E: enormanwalker@menzieswm.co.uk