• Thousands of people who make contributions annually may be caught immediately by the legislation.
 
• Pension contributions should be protected from the new tax if they are below the average contribution over the previous 3 years.

The ‘Anti Forestalling’ measures, the immediate change to pension funding which took effect from 22 April this year, seek to stop individuals who earn over £150,000 per annum from making large pension contributions before the rules are amended from April 2011.  Investment Managers and Financial Advisers Brewin Dolphin feel that the way in which the regulations have been written could have a major effect upon the self employed and owner-managers of businesses.  Under the existing rules, regular contributions are not affected but other contributions can be subject to a ‘special annual allowance tax charge’.  This will be 20% rising to 30% in the next tax year.  The problem is that ‘regular’ is defined as monthly or quarterly and thousands of people who make contributions annually may be caught by the legislation. 

Richard Harwood, Divisional Director of Brewin Dolphin Financial Planning, says “Most small business owners and the self employed are not in a position to fund pensions on a monthly basis and will usually make contributions annually for tax reasons or when they are aware of their business profits.  We see no fair reason why they should be subject to additional tax just because of the timing of their contributions.  If they were senior civil servants or company directors in final salary schemes, they would not attract the same tax penalty, if they had a significant pay rise leading to increases in pension benefits”.

An additional feature of the rules is that, in many cases, the contributions are protected if they are made to the specific pension arrangement in force prior to 22 April.  If an individual stops contributing into a plan and re-directs their payments into an alternative plan because of lower charges or better investment performance, they could, again, lose their protection from the new tax. 

Brewin Dolphin has written to Stephen Timms MP at The Treasury recommending amendments to the regulations which they feel will make the system fairer.

Their main proposal is that pension contributions should be protected from the tax if they are below the average contribution over the previous 3 years.  This they claim will, at least partly, allow protection for those who make annual contributions or who want to change pension provider.

Harwood says “We have concerns about the increase in Income Tax in general but the specific pension regulations are of particular concern.  They appear to penalise some individuals very heavily just because of the way they have chosen to make pension contributions.  They continue to follow an ongoing process of penalising entrepreneurs in the private sector and protecting the pension benefits of civil servants.  This is one more piece of legislation which will reduce pension funding in the private sector if it is not re-considered”.

-Ends-

The information contained in this article has been taken from public sources and is believed to be reliable and accurate, but without further investigation cannot be warranted as to accuracy or completeness.  The opinions expressed in this presentation are not necessarily the views held throughout Brewin Dolphin Ltd. No Director, representative or employee of Brewin Dolphin Ltd accepts liability for any direct or consequential loss arising from the use of this document or its contents. The tax implications mentioned are based on your personal circumstances and current legislation which is subject to change.

For more information please contact:
Richard Harwood on 0845 213 4773
Charlotte Black on 0845 213 3331
Or the Press Office on 0845 213 3026