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Forward Thinking

You are right to raise this question, not least because the loss of the carry-forward facility will not necessarily be a disadvantage to all your clients.

First of all, dealing with your self, as a self-employed ind ividual, all your pension contributions, whether for the current year or elected to be carried back, will be payable net of basic-rate tax from April 6, 2001.

What follows applies to both self-employed and emp loyed personal pensions. Any mention of contribution also includes anything being paid by an employer on behalf of an employee.

In general, contributions of up to £3,600 gross or £2,808 net can be paid to a personal pension plan irrespective of an individual&#39s net relevant earnings. Contributions in excess of these figures will be limited in the usual way.

It should be understood that the £3,600 threshold app lies to the total of all indivi dual, employer and self-emp loyed con tributions. It also includes the contribution relative to wai ver of premium for pre-April 6, 2001 policies, life insurance and contributions to retirement annuities and stakeholder pensions. It does not include the Nat ional Insurance rebate to con tra cted-out personal pensions.

If contributions in a tax year exceed £3,600, the policy holder can nominate either the current tax year or one of the previous five tax years to be classed as the basis year for earnings. Evidence of earn ings for that basis year will be required and then those earnings can be used for the basis year and the following five tax years.

It will be possible to change basis years if subsequent years&#39 earnings exceed those previously chosen but new evidence would be required.

Over the last few years, there has been a great deal of confusion resulting in contribu tions being stopped, particularly for employed personal pension policyholders. There was a requirement that the perso nal pension provider had to write to the member and seek confirmation of their eligi bility. If no reply was rec ei ved, premium collection had to cease.

From April 6, 2001, certificates of eligibility will no longer be required. It will be the res ponsibility of the policyholder to provide the pension provider with details of any changes in circumstan ces, particularly as they relate to employment status. Other changes to be notif ied would involve directorships, joining a company pension scheme and residency.

As we move into a new era where earnings are not req uired to justify contributions up to £3,600, the application of residency will become more important. To be eligible for contributions, an individual must either have UK net relevant earnings or be classed as ordinarily resident in the UK. If changes occur, it does not necessarily mean contributions must stop but new rules would apply.

It is amazing how each subsequent change in legislation over the decades has been heralded with the general theme that the purpose is to simplify procedures. One change with regard to personal pensions that will most definitively complicate matters is that of concurrency. Mainly as a result of stakehol der legislation, we now have the situation where some one can contribute to a personal pension and be a member of an occupational pension sch eme. While the intention is good, my experience leads me to believe this area is going to cause many problems.

In general, someone can pay into a personal pension and be a member of an occupational pension scheme as long as they are not a controlling director, have not recei ved earnings in excess of £30,000 and are ordinary resident in the UK.

From April 6, 2001, waiver of contribution will not be permitted for new personal pensions. The limit for pension term insurance will be inc reased from 5 to 10 per cent.

Finally, the situation with regards to carry-forward and carryback can be summarised as follows. Carry-forward will be abolished from April 6, except where it is used in conjunction with carryback to the 2000/2001 tax year. It will only be possible to carry back to the previous tax year and contributions must be paid between April 6 and January 31 inclusive. The election to carry back must also be made either before or at the same time as contributions are paid.

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