Pension Changes due in April 2011

Pension Changes due in April 2011

• 1.
  Pension Changes 2011
• 2.
  Brief Pension HistoryIn2006 the government introduced Pension Simplification.
• 3.
  This merged 8pension regimes going forward from 6th April 2006.
• 4.
  This left alegacy
• 5.
  It created asimple structure from 6th April 2006 with one regime?
• 6.
  E.g. Everyone nowgets 25% tax free cash (PCLSP)
• 7.
  New contribution limits
• 8.
  Personal contributions arelimited to:
• 9.
  100% earnings or£255,000 for tax year 2010/2011
• 10.
  But anti forestallingregulations introduced from 29th April 2009
• 11.
  High earners restrictedto £20,000 - £30,000 Proposed April 2011 Rules – Annual Allowance and age 75Reduced from £255,000 to £50,000
• 12.
  Lifetime Allowance plannedto reduce to £1.5m from April 2012
• 13.
  Protection from theLTA charge will be put in place. You need to apply
• 14.
  Will remain untilat least 2015/16
• 15.
  Tax relief NOTrestricted to basic rate (40% & 50%)
• 16.
  New carry forwardfacility will be available for tax years back to 2008/09
• 17.
  The current approachto Pension Input periods will continue
• 18.
  Transitional rules willapply for PIPs starting in 2010/11 but ending in 2011/12
• 19.
  No longer arequirement to buy an annuity at age 75 What is a pension input period (PIP)?A maximum of 12 monthsNormally run from 6th April to 5th April (tax period)Can be closed off earlyCan be opened and closed on a target dateOnly one PIP can be closed off in any tax year
• 20.
  What is CarryForward?Start the process by paying the maximum contribution in 2011/2012Then mop up unused relief starting with 2008/2009Pay the maximum contributionGo back 3 tax years
• 21.
  The return of‘Carry Forward’Unused allowances in previous years, dating back to 2008/09, may be carried forward up to 3 years. These examples help demonstrate how this will operate: *Note – Nil is carried forward, rather than a negative amount
• 22.
  Pension Input Periodsand carry forward to pay the maximum possible contribution in 2011/2012Pay the maximum contribution in 2011/2012 to start the carry forward process and pay a new PIP contribution
• 23.
  Go back to2008/2009 to utilise unused relief
• 24.
  Then work forwardfrom 2009/2010
• 25.
  Then move to2010/2011Tax year 2010/2011Tax year 2011/2012Pension Input Period opened and closedPension Input Period opened and closedPIP is closed 5th May 2012£50,000 paid 6th May 2011£50,000 paid 6th April 2011PIP is closed 5th May 2011
• 26.
  Reclaiming the PersonalAllowance – 60% reliefTotal Income £110,000No pension contributionTotal Income £110,000£10,000 gross pension contribution£71,125£56,125Higher Rate BandIncome Tax Liability: £6,475 x 0% = nil£47,400 x 20% = £9,480£46,125 x 40% = £22,450Total liability = £31,930Basic rate tax relief at source = £2,000Total tax relief:£35,930 - £31,930 + £2,000 = £6,000Higher Rate BandIncome Tax Liability: £1,475 x 0% = nil37,400 x 20% = £7,480£71,125 x 40% = £28,450Total liability = £35,930£47,400£37,400ExtendedBasic Rate BandBasic Rate BandPersonal Allowance£6,475Personal Allowance£1,475
• 27.
  In summaryAnnual Allowanceto reduce to £50,000 from April 2011
• 28.
  Tax relief willbe available at individual’s highest marginal rate
• 29.
  Unused annual allowancesmay be carried forward for up to 3 years
• 30.
  Save your personalallowance
• 31.
  Lifetime Allowance plannedto reduce to £1.5m from April 2012
• 32.
  Protection from theLTA charge will be put in place
• 33.
  No longer arequirement to buy an annuity at age 75
• 34.
  Opportunities for thisyear with the correct adviceRegulatory InformationThis information is provided solely for general consideration and is based on MPL’s current understanding of current and ongoing legislation, relevant law and taxation practice as at June 2010, although this may change in the future and depends upon your individual financial circumstances. Whilst every effort has been made in the preparation of this guide to ensure that the information is fair, true and correct at the time of going to press, please be aware that all details are subject to change. MPL Wealth Management Limited takes no responsibility for action taken based on the contents of this document.