Studying this technical article and answering the related questions can count towards your verifiable CPD if you are following the unit route to CPD and the content is relevant to your learning and development needs. One hour of learning equates to one unit of CPD. We'd suggest that you use this as a guide when allocating yourself CPD units.
This article was first published in the October 2011 edition of Accounting and Business magazine.
Previously, different rules applied to each type of pension scheme, with the rules for personal pension scheme savings being particularly complicated.
The amount of tax relief depended on a person's age and earnings, and there was a six year carry forward of unused relief. Under the simplified rules any amount can be contributed into a pension scheme, with tax relief effectively being restricted to the lower of earnings and an annual allowance. The changes meant that people could contribute significantly more towards their retirement.
It was too good to last. After just three years the Labour Government announced that from April 2011 tax relief on pension savings was going to be restricted to the basic rate of 20% for high income individuals. The new Coalition Government agreed that a reform of pensions tax relief was a necessary part of reducing the fiscal deficit, but has taken an entirely different approach.
The annual allowance for 2010-11 was GBP255,000, and this was due to remain unchanged until 2015-16. For 2011-12 the Coalition Government has reduced the annual allowance to GBP50,000. However, pension savings made within this limit continue to qualify for tax relief at a person's highest marginal rate of tax, be it the basic rate of 20%, the higher rate of 40%, or the additional rate of 50%.
If the annual allowance is not fully used in any tax year then it is now possible to carry forward any unused allowance for up to three years. However, carry forward is only possible if a person is a member of a pension scheme for a particular tax year. Therefore for any year in which a person is not a member of a pension scheme the annual allowance is lost. The carry forward rules have been introduced to protect people, especially employees, who exceed the GBP50,000 annual limit due to a one-off 'spike' in pension savings.