Readers should note that currently these are only Government proposals and so nobody can be sure what will happen before the consultation period ends.
What are the tax changes?
The Government's proposal is that, from April 2011, the amount of pension saving each year which will qualify for tax relief will be restricted to an amount in the range of £30,000 to £45,000. This compares with the present annual amount (the Annual Allowance) of £255,000. There is also a possibility that the maximum tax-neutral value of pensions saving at retirement (the Lifetime Allowance) may be reduced from £1.8 million to £1.5 million, or some other figure.
What were the original proposals?
The previous Government had put in place a complex system to restrict the amount of tax relief for pensions saving, for higher earners, which involved an earnings test, an age-related method of valuing final salary (and other defined benefit) pensions, and a tapering of tax relief for earnings between £150,000 and £180,000. The net result of this would have been to make any pensions saving unattractive for many higher earners.
Click here to download the full Q&A on the proposed pensions tax rules changes.
