In our pensions update of May 2009, we noted that the Government had announced in the 2009 Budget that, with effect from 6 April 2011, tax relief on pension contributions would be restricted for individuals with an annual income of £150,000 or more. Relief is to be tapered away so that for those earning over £180,000, relief will be worth 20 per cent, the same as for a basic rate taxpayer.

In the Pre-Budget Report on 9 December, the Chancellor clarified that, from 6 April 2011, tax relief for pension contributions made by high income individuals with gross remuneration packages of £150,000 and over will be restricted. Gross income will include all pension contributions, including the value of any pension benefits funded by the individual’s employer.

An individual will be classed as “high income” if his gross income, including his own pension contributions and any charitable donations he makes, is £130,000 or more, and his gross income is £150,000 or above when employer pension contributions are included. The anti-forestalling provisions are extended so that they apply to all high income individuals from 9 December 2009.

A formal 12 week consultation on the implementation of this change will run until 3 March 2010.

View the consultation paper.

HM Revenue & Customs (HMRC) has also published a fact sheet which explains the restricted tax relief on pension contributions for high-income individuals and which makes comparisons between the anti-forestalling rules and the proposed changes from April 2011.

View the fact sheet.

Other announcements relevant to pensions in the Pre-Budget Report include:

  • an increase in the level of Basic State Pension from April 2010 by 2.5 per cent;
  • an indication that public sector pensions should be more in line with those provided in the private sector, with employer contributions being subject to a cap. It is also proposed that those in the public sector earning above £100,000 will be required to pay higher pension contributions; and
  • a reference to “phasing-in the roll-out of personal accounts” as a reduction in Government spending, although there were no further details at this stage.