We already know that from the 6 April higher earners, i.e. those earning more than £150,000 face a reduction in the annual pension allowance from £40,000 to £10,000 per annum on a scale so that £1 of the allowance will be lost for every £2 of income above £150,000. Some high earning clients may therefore wish to maximise things this year and take advantage of the last three years of unused reliefs, which currently stand at £50,000 for 2013/14, £40,000 for 2014/15, and £40,000 for the current 2015/16 tax year.
In addition to the changes coming in from 6 April 2016, Chancellor George Osborne is due to announce changes in his Budget on 16 March, following a 7 month inquiry by the Treasury and there is talk of a change in the rate of tax relief being applied to pension contributions. At the moment people on higher incomes benefit from either 40% or 45% tax relief, whilst others only receive 20%. It has been suggested by industry experts that a potential new flat rate relief could be applied at 25% or 30%, which is better for basic rate taxpayers but worse for higher earners.
There is a great deal of press speculation within the pensions industry that these changes may actually take effect on the day of the Budget so for higher rate or additional rate taxpayers it may be prudent to act now and make extra contributions rather than wait until the Budget announcement. Reference should be made to the lifetime allowance, which is currently £1,250,000 and is due to be reduced to £1,000,000 with effect from 6 April 2016 and we recommend you obtain advice from your pension adviser if you have one. Alternatively, we are happy to facilitate an introduction.