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Complexity adds to the need for advice

By Colin Jelley

Chancellor Darling has continued this Labour administration’s excellent record of creating business opportunities for financial advisers. He has added to the complexity in his Budget speech in April around the pension tax relief regime for those with hig- her incomes.

Clearly, he believes many with incomes slightly below the £150,000 relevant income threshold have been enhancing their total reward package by increasing employer pension contributions. As a result, employer pension contributions will from 2011/12 be included in the relevant income threshold definition that determines whether an individual will be caught.

Individuals whose relevant income is below £130,000, before the addition of employer contributions, will not suffer restric- ted tax relief. Those with relevant incomes of £130,000 or more will have to include the value of employer contributions to determine whether they have exceeded the £150,000 threshold.

Prior to 2011/12, the anti-forestalling provisions included in Finance Act 2009 continue to apply but with a revised threshold of £130,000 rather than £150,000. This means that many who thought they were unaffected by these anti-forestalling measures will now need to reflect on what impact the revised package of announcements will have. This is an opportunity for advisers to review again the planning that may have been initiated only in the last seven months or so.

One area of uncertainty remains as it is again unclear how accruals under defined-benefit schemes will be treated. The Government today published a consultation document to look at this with the aim of a solution in March 2010. Failure to treat DB schemes equally with DC arrangements would be wholly inappropriate, given the general unaffordability of DB state sector schemes. The Chancellor has at last begun to take steps to address this by capping the accruals for these schemes for those earning over £100,000 a year.

A year ago, the Chancellor increased National Insurance of 0.5 per cent for each of employers and individuals from 2011/12. He has now announced an additional 0.5 per cent rise for both from that year, giving a total increase of 2 per cent.

At the lower to average end of the income spectrum, measures will be introduced to protect those earning less than £20,000 a year from the extra 1 per cent but not the previously announced 1 per cent.

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