Mailings
Wednesday 3 March 2010
HMRC announces welcome relaxation on pension transfers
HMRC has relaxed regulations that were announced in the 2009 Budget, so that high earners can now transfer protected regular pension contributions to new schemes or providers without incurring the Special Annual Allowance tax charge. This change in regulation is effective from the 19th March 2010.
In the Budget 2009 (amended by the Pre Budget Report 2009), "high earners", defined as those with total income of 130,000 or more, will only benefit from higher rate tax relief on pension contributions of up to 20,000. However, where regular pension contributions (defined as being paid quarterly or more frequently) in excess of 20,000 were already being paid before Budget day on the 22nd April 2009, these were allowed to continue to benefit from higher rate tax relief. These are known as Protected Pension Inputs.
The problem was that on transferring their pension scheme to another arrangement or provider, this protection was lost, meaning the individual would suffer from a reduction in tax relief.
The new HMRC announcement will allow pension arrangements to be transferred with their higher rate tax relief being maintained.
We welcome this news which has taken nearly twelve months to arrive and was essentially an oversight by the Treasury when the regulations were originally made (without consultation with the pension industry).
The small print gives the specific requirements which allow the transfer of protected pension inputs:
- Regular contributions must continue to be made to the new arrangement at least quarterly.
- The new arrangement must commence no later than three months after contributions cease being paid to the old arrangement.
- The transfer can only be made to one pension arrangement and the high earner cannot start another new arrangement or restart the old one.
- The new arrangement must not be materially different to the old arrangement in the way retirement benefits are calculated under its rules.
For the full regulatory announcement, please see SI 2010 Number 429:
http://www.opsi.gov.uk/si/si2010/uksi_20100429_en_1
If you have any queries on these issues, please speak to your usual contact
The IPS Partnership