Last Gasp change to Budget pension tax change?
Iíve been away for a week on holiday in Washington. A weekís a long time in pensions! I mean, youíve only got to take your eyes off this stuff for five minutes and itís all changed again hasnít it? But donít worry, this isnít another BeeLine about how unhelpful it is to have constant change hitting our pension system; itís such an everyday occurrence these days that I guess itís not really news any more is it?
Thinking about that I suppose if we ever had a week when some significant changes to pension legislation werenít made it would probably make the lead story on News at Ten or something (ďIn news that shocked the City it was announced today that for the first time in decades there were no changes made to UK pensions legislation this week! Ė that kind of thing. Shock! Horror! EtcÖ)
Anyway there were changes proposed last week while I was away and those of you who read the previous BeeLine on the anti-forestalling stuff (Changes to the Budget Pension Changes? The Special Annual Allowance and the Finance Bill) will probably be as surprised/resigned to it as I am. In that last BeeLine I said that given what ministers had said it was unlikely that changes would be made, but that any changes that were going to be made to the Finance Bill would have to have to be introduced by the Treasury themselves at the Report Stage sometime before the mid-July recess.
Well, thatís exactly what happened last Friday (the 3rd of July) when the Government tabled an amendment to its own legislation to allow more flexibility for pension contributions made on an Ďirregularí basis by people earning more than £150,000 pa between now and 2011.
The Treasury has proposed an amendment to the anti-forestalling measures in the Finance Bill and it will be debated in Parliament this week at the Billís Report Stage. Unlike some of the amendments that have been rumoured in recent weeks, we can expect this to go through given that the government have put it forward. As ever though, itís all subject to change and we really do need to wait until the fat lady sings on this one to be sure that we have the full story.
The amendment as drafted will allow regular contributions that have been paid at less frequent intervals than quarterly to potentially become what is known as a Protected Pension Input Amount (or a PPIA, no less).
The average of what the amendment calls 'infrequent money purchase contributions' over the last three tax years can be a PPIA with a cap of £30,000. If the average is less than £20,000, then the total contributions that can be paid in the current tax year (and the next tax year) before the special annual allowance charge is levied will remain at £20,000.
Initial commentary suggested that this averaging of contributions would apply to total pension contributions paid in the last three tax years but the proposed amendment seems clear that it only applies to contributions made at less frequent intervals than quarterly.
The practical effect of this on people earning £150,000 plus is probably best shown by way of examples:
Mrs Above-Average has been paying £1,000 per month (£12,000 per annum) for the last three tax years and has always topped this up with an annual payment of £25,000. The average single payment amount of £25,000 would be a PPIA and this is the amount that she could pay in total this tax year (and the next) without a special annual allowance charge.
Mr Above-Average has also been paying £1,000 per month and has topped this up over the last three tax years with annual amounts of £35,000. He could pay up to £30,000 this tax year without a tax charge (average of £35,000 per annum capped at £30,000).
Ms Above-Average has been paying £1,000 per month topped up with £18,000 over the last three years and she could therefore pay up to £20,000 this tax year and the next (thatís another £8,000 on top of the monthly contributions of £12,000, but much less than the total of £30,000 [£12,000 made monthly and £18,000 top-up] that she achieved in the last three years).
So thatís it I guess. As it all goes through Parliament this week weíll keep an eye on it for you and will probably publish a blow by blow account of the debate once itís put out in Hansard so you can see the arguments and justifications made by ministers for why itís all going to be like this now and not like that; you know the sort of thing; good background etcÖ
Anyone, by the way, who thinks they fully understand this bafflingly complex twist to our already bewilderingly complicated pension tax laws please feel free to award yourself a House-Point!
7 July 2009
†Follow the BeeHive on www.twitter.com/PensionsGuru
Source: Finance Bill Amendment, 3 July 2009
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