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Adviser  >  Technical Central  >  Information & guidance  >  Contributions  >  Top 10 facts & figures

Top 10 facts & figures

Here’s a brief summary of some of the key facts and figures that you need to know.

1. CONTRIBUTIONS

Annual Allowance - The allowance for the tax years 2006/2007 to 2010/2011 is:

Tax year	Annual allowance
2006/07	£215,000
2007/08	£225,000
2008/09	£235,000
2009/10	£245,000
2010/11	£255,000

For defined benefit schemes, members whose benefits increase in value by more than the annual allowance in a year will be subject to a 40% tax charge on the excess. For members of money purchase schemes, if contributions exceed the annual allowance in a year the member will be subject to a 40% tax charge on the excess. Members of more than one pension scheme must take into account the value of all benefit increases (including increases to deferred benefits) in defined benefit schemes and all contributions to money purchase pensions, when working out whether the annual allowance has been exceeded.

Member contributions - the higher of £3,600 p.a. and 100% of earnings can receive tax relief. Any excess over the annual allowance will be subject to a 40% tax charge.

Employer contributions - theoretically, an employer could pay any amount for an employee regardless of the employee's salary.  Employer’s may receive 100% tax relief on the whole contribution but it will be up to the Employer's local inspector of Taxes whether or not the entire contribution will be relievable for tax purposes.  If the contribution, together will all other contributions to money purchase schemes and accrual over the year in final salary schemes exceeds the annual allowance the scheme member will be liable to a 40% tax charge on the amount over and above the annual allowance.  

Concurrency - Anyone will be able to join any type and any number of registered pension schemes at the same time.

2. STANDARD LIFETIME ALLOWANCE (SLA)

The standard lifetime allowances for the tax years 2006/2007 to 2010/2011 is: 

Tax year	SLA
2006/07	£1.5 million
2007/08	£1.60 million
2008/09	£1.65 million
2009/10	£1.75 million
2010/11	£1.80 million

In certain circumstances it will not be obvious if a member’s benefits value exceeds the SLA. The Finance Act 2004 sets out how these benefits should be valued for the purposes of testing against the SLA. 

Type of benefit	Calculation of benefits value
Annuity in payment	Multiply the member’s annual annuity by 25
Final salary scheme (scheme pensions)	Multiply the member’s annual pension before commutation by 20 Where lump sums are provided otherwise than by commutation they are valued using a factor of 1:1 and are added to the above value
Income drawdown in payment before A-Day	Multiply the relevant GAD maximum withdrawal by 25
Money purchase scheme	The total market value of the funds/assets held unless a scheme pension is paid in which case a factor of 20:1 is used
Cash balance plan	The value of the benefits as calculated in line with the scheme rules

If a member decides to take their benefits in stages then a proportion of their SLA will be used each time they take benefits.

If the benefits value at vesting exceeds the SLA, and the member has not opted for either primary or enhanced protection, the lifetime allowance charge (LAC) can be applied in either of two ways or a combination of both depending on how the excess benefits are taken. The charge is:

• 55% if taken as a lump sum, or
• 25% if taken as income.

3. INVESTMENTS

There is one set of investment rules for all pension schemes.

• Scheme borrowing - limited to 50% of the market value of scheme assets less any outstanding loans
• Loans to the employer (occupational pension schemes only) - up to 50% of the market value of the scheme with a maximum term of 5 years, but under certain circumstances the loan can be extended by up to 5 years
• Shares in the sponsoring employer (occupational pension schemes only)- will be limited to 5% of the scheme assets. There is no limit on the number of shares that are traded on a recognised overseas stock exchange
• Connected party rules - no longer any restriction. But, any asset used by a member or an associate of the member on a non-commercial basis will be treated as a benefit-in-kind
• Pensioneer Trustee - no longer required
• Personal 'chattels' - no change in the rules, personal 'chattels' will be a prohibited asset
• Property - no change in the rules, commercial property will be allowed, residential property will be a prohibited asset
• Investments held before A-Day - not affected by new rules.

4. PROTECTION

There are 2 types of protection, primary and enhanced. 

Primary	Enhanced
Benefits must be within HM Revenue and Customs (HMRC) limits before A-Day	Benefits must be within HMRC limits before A-Day
Benefits value must be over £1.5 million on A-Day	Any amount can be protected with no possibility of a Lifetime allowance charge
Must be registered with the HMRC by April 2009	Must be registered with HMRC by April 2009 but aall contributions to money purchase schemes must cease from A-Day and there can only be limited accrual under defined benefit schemes from A-Day, the only exception being any contracted-out rebates to an existing scheme
Member can continue to accrue benefits within limits after A-Day	All contributions to money purchase schemes must cease from A-Day and there can only be limited accrual under defined benefit schemes from A-Day, the only exception being any contracted-out rebates to an existing scheme
Lifetime allowance charge may still be due if benefits value exceeds personal lifetime allowance	No test against the lifetime allowance as long as enhanced protection remains. Can revert to primary protection if contributions made (if also registered for primary protection)

5. MINIMUM AND MAXIMUM PENSION AGES

From A-Day to April 2010 the minimum age is 50.
Benefits on ill health early retirement can be taken earlier.

From 2010 the minimum age will be 55.
Benefits on ill health early retirement can be taken earlier.

From A-Day income must be secured by a secured pension or an alternatively secured pension by age 75.

6. RETIREMENT BENEFITS

Pension commencement lump sum (PCLS) - The maximum amount of PCLS is 25% of the benefits value up to a maximum of 25% of the SLA at vesting. There are special arrangements for members with an entitlement to more than 25% of the benefits value or £375,000 PCLS on A-Day.

Income benefit on retirement

Secured pension	lifetime annuity - money purchase schemes only scheme pension - defined benefits schemes can only provide a scheme pension. Scheme pension available for money purchase schemes as well
Unsecured pension	similar to current income drawdown can be used up to age 75 maximum amount 120% of the published GAD rate. There is no minimum amount income levels must be reviewed every 5 years or short-term annuity
Alternatively secured pension	maximum amount 90% (increased from 70% with effect from 6/4/07) of the published GAD rate at age 75. The minimum amount is 55% (increased from nil with effect from 6/4/07) of the published GAD rate  income levels must be reviewed every year there can be no pension guarantee period
Triviality	The following must apply: no previous trivial lump sum paid more than 12 months ago all of the benefits under the scheme have to be taken at the same time the total benefits value of the individual’s pension savings is not more than 1% of the SLA in force at that point the member has some SLA available the member is between ages 60 and 75 after the payment the member has no rights left in the scheme 25% of lump sum will be tax-free, the balance will be taxed at the member's marginal rate

7. DEATH BENEFITS

Benefits must be paid out by the earlier of 2 years from the date on which the scheme administrator first knew about the member's death and the date on which the scheme administrator could reasonably have been expected to know about it.  If the benefits are not paid out within this timescale they will be treated as an unauthorised payment and will be taxed at 40%.

A dependant is a married spouse or an ex-spouse (or a civil partner) of a member if they were married when the member first started to receive the pension, child under 23, or a child who is financially dependent because of physical or mental impairment and anyone else who is financially dependent. If a pension was being paid to a dependant child at A-Day then this may continue in payment until the later of the child reaching age 23 and ceasing in full time or vocational training.

Death before benefits are taken (crystallised)

• Lump sum return of fund and/or lump sum benefit
  - up to SLA tax free
  - excess subject to 55% tax charge
  and/or
• Dependants’ pensions (not tested against the member’s SLA)
  - secured income
  - unsecured income – only if dependant under age 75
  - alternatively secured pension – only if dependant over age 75.

Death after benefits are taken (crystallised)

• Secured income
  • Pension protection
    - initial purchase price less income paid to date
    - subject to 35% tax
    - paid to the member’s estate or trust,
    or
  • Continuation of payment of any pension guaranteed for up to 10 years
  • Any dependant’s pension.

• Unsecured income
  • Lump sum less 35% tax,
    and/or
  • Dependants’ pensions (not tested against the member’s or dependant’s SLA)
    - secured income
    - unsecured income - only if dependant under age 75
    - alternatively secured pension - only if dependant age 75 or over.
    
    
• Alternatively secured pension
  • Dependant’s pension
    or
  • If there is no dependant, donated to a charity nominated by the member (or by the scheme administrator if the member hadn't nominated one).

8. TRANSFER OF BENEFITS

Not all benefits need to be transferred at once, they can be transferred in stages. If however a partial transfer is paid in respect of a member with enhanced protection, the protection would be lost. Benefits are not usually tested against the SLA at date of transfer, except where the transfer is to an overseas scheme.

9. PENSIONS AND DIVORCE

• The pension credit will count towards the recipient’s SLA
• Pension credits don’t count towards the annual allowance
• If there is an existing pension sharing order in force at A-Day, pension credits can be ignored when calculating pre A-Day rights.

10. RETIREMENT ANNUITY CONTRACTS

• Can protect benefits value over £1.5 million using primary or can protect any amount using enhanced protection
• PCLS at retirement will be 25% of fund. There is no protection for higher amounts of PCLS
• Able to take benefits at age 50 from A-Day to April 2010
• Will be able to take benefits from age 55 after April 2010
• Carry back and carry forward have been abolished.