View more on these topics

Salary sacrifice is one ray of pension light

By John Lawson

Those expecting a pre-Budget Report encouraging savings will be sorely disappointed.

As expected, the Government has taken another swipe at pension tax relief in the run-up to next year’s general election. Now, anyone earning more than £130,000 will be caught.

Previously, the effective limit was £170,000 because £20,000 of your own pension contributions could be deducted in determining whether “relevant income” exceeded the £150,000 threshold.

Personal, but not employer contributions count towards the new £130,000 limit. Those who exceed £130,000 on this measure also have to count employer contributions towards their total.

These changes have immediate effect and the anti-forestalling rules are amended accordingly.

The top rate of special ann- ual allowance charge is increased to 30 per cent from April 2010 but only where tax relief is given at 50 per cent.

Where tax relief is 40 per cent (on taxable income between £130,000 and £150,000), the charge will be 20 per cent.

Until April 2011, people caught by these rules should make hay. The anti-forestalling rules allow everyone affected to pay £20,000 in this and next tax year, or more if they have a history of regular monthly, annual or single contributions.

After April 2011, the decision to stay in a pension scheme will hinge on the rate of tax paid on pension income. Those paying 50 per cent on pension income are most likely to seek out alternatives such as a cash bonus or joining an employer-funded retirement benefits scheme.

There is a new choice over who pays the special annual allowance charge. This was originally charged to the individual through self-assessment but a new option of payment by the pension scheme, with a mat- ching reduction in benefits, is proposed.

For the optimists, the one ray of pension light is that salary sacrifice is now more attractive, but only due to the 1 per cent hike in National Insurance. Personal rates go up to 12 per cent and 2 per cent and the employer rate goes up to 13.8 per cent in 2011/12.



New delay adds to concerns over levelling down

The Government has given employers the green light to contribute only 1 per cent to their employees’ pensions for an extra year, meaning members may not receive the full 3 per cent contribution until October 2017. The delay will earn the Treasury £2.4bn. Auto-enrolment on a 1 per cent employer contribution will still begin in […]

Fund probe

Police have arrested a 58-year-old man in a £20m investment fund fraud investigation surrounding Gilher Inc, which offered 20 per cent returns to investors. The man has been released on police bail.


News and expert analysis straight to your inbox

Sign up


    Leave a comment


    Why register with Money Marketing ?

    Providing trusted insight for professional advisers.  Since 1985 Money Marketing has helped promote and analyse the financial adviser community in the UK and continues to be the trusted industry brand for independent insight and advice.

    News & analysis delivered directly to your inbox
    Register today to receive our range of news alerts including daily and weekly briefings

    Money Marketing Events
    Be the first to hear about our industry leading conferences, awards, roundtables and more.

    Research and insight
    Take part in and see the results of Money Marketing's flagship investigations into industry trends.

    Have your say
    Only registered users can post comments. As the voice of the adviser community, our content generates robust debate. Sign up today and make your voice heard.

    Register now

    Having problems?

    Contact us on +44 (0)20 7292 3712

    Lines are open Monday to Friday 9:00am -5.00pm