Retirement Planning information from Barclays Stockbrokers - Changes to pension rules - 2011/12 tax year
Changes to pension rules - 2011/12 tax year

Changes to pension rules - 2011/12 tax year

The following changes to pension regulations took effect from 6 April 2011. There were some changes which made Self Invested Personal Pensions (SIPPs​) significantly more attractive than previously. However, there were areas where the advantages of pensions in general were pruned back.

Carry forward of Annual Allowance

Since April 2011, you have been able to make use of any unused annual allowances from the previous last 3 tax years. This means you can contribute up to £50,000 (the annual allowance) and in addition you may be able to contribute (and receive tax relief on) a higher amount, by taking into account any unused allowances you have from the 3 previous tax years. For example, when assessing your annual allowance for 2012/13 you can also look back to any unused allowances in the 2009/10, 2010/11 and 2011/12 tax years (using a notional annual allowance of £50,000 for these tax years).


To qualify:

You must have been a member of a Registered Pension Scheme in the relevant tax year and you must have sufficient relevant UK earnings in the tax year that the contribution is paid in order to receive tax relief on the contribution.

This is good news if you have contributed less than £50,000 in any of the last 3 tax years. This could be because you have been restricted in the contributions you were able to make, or you may have had an irregular income. The tax relief you receive relates to your earnings in the tax year that the contributions are made.

You must first of all use your current year annual allowance before using the carry forward rules. When this is exhausted you then use the earliest year’s unused allowance within the three year period before later years.

Here are some examples of how carry forward works:

Example 1    
Contributions​ ​ £20,000 carry forward available in 2012/13 ​
2009/10 £70,000​

The 2009/10 contribution exceeds the notional annual allowance of £50,000 so no carry forward is available, but there is scope in the two subsequent years to carry forward - i.e. £10,000 from each of the 2010/11 and 2011/12 tax years.

2010/11​ £40,000​
2011/12​ £40,000 
Example 2    
Contributions   ​ ​
£50,000 carry forward available in 2012/13
2009/10 ​ £30,000​ 2010/11 pension input amount exceeds the notional annual allowance by £50,000 and so no carry forward is available. However, this individual can still carry forward £20,000 in respect of the 2009/10 tax year and also £30,000 in respect of the 2011/12 tax year.   ​
2010/11​ £100,000 ​
2011/12 £20,000​
 

Flexible Drawdown

If you have an annual income of £20,000 or more from company pension schemes, State Pensions and lifetime annuities, you now have more flexibility around how much you can withdraw from a SIPP or personal pension. Effectively, the cap on annual withdrawals (that was linked to the Government Actuarial Department tables) has been removed.

SIPPs are far more flexible as a result. They now allow investors to supplement their retirement income by taking lump sums from their personal pension pot. Although, where the lump sums do not represent the 25% tax free amount available when pension benefits are first drawn, these amounts will be subject to income tax.

Use a SIPP or personal pension in your inheritance planning

You are no longer obliged to start taking an income at age 75. When you also consider that the reduction in the rate of tax (from 82% to 55%) which could apply to your remaining pension pot if you decide to pass it on to the next generation on your death, SIPPs are now an increasingly attractive inheritance planning tool - particularly for 50% tax payers. Lower rates of tax may even apply, depending on your circumstances.

 

Reduction in Annual Allowance from 2011/12

The annual limit on contributions eligible for tax relief was reduced to £50,000 from April 2011. The maximum that you can contribute to your pension (on which you can obtain tax relief) is either 100% of your income or £50,000, whichever is less. Non- earners can also benefit from tax relief on contributions of up to £3,600.

The amount of income that you can withdraw from your pension where Flexible Drawdown is not permitted, is now capped at 100% of the Government Actuarial Department (GAD) rates. The amount that can be withdrawn as income is based on your age and the lower cap will come into effect on the first review of your SIPP after 6 April 2011. This could potentially mean that you can withdraw less from your SIPP on an annual basis.

Tax on excess contributions

Tax charges apply if your contributions exceed the amount eligible for relief

Removal of annual allowance exemption

There have been certain situations in the past where the annual allowance did not apply to contributions. For example, this could be the year in which you first withdrew your pension benefits. This could mean that you were able to top up your retirement savings above the levels normally permitted. These exemptions were withdrawn, with certain exceptions in the case of death/ serious ill health.

Barclays Stockbrokers does not provide tax advice. If you feel you need advice you should seek a suitably qualified adviser. The impact of tax and the value of reliefs and other favourable treatment can vary depending upon your circumstances. Tax rules can change.

 

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