In last week’s Summer Budget the chancellor George Osborne announced plans to taper the annual tax-free pension contribution limit for those with incomes of over £150,000, including the value of any employer contributions.
For every £2 of income over £150,000, the government said it would reduce the annual allowance by £1, down to a minimum of £10,000 for those earning more than £210,000 a year.
In an explanatory note published on Wednesday, the Treasury said it planned to prevent individuals entering into a salary sacrifice or flexible remuneration arrangement on or after 9 July 2015 in order to reduce their threshold income.
“Where this applies, the amount of income given up is added back to the individual’s threshold income,” it said.
The income will be calculated as “an individual’s net income plus the value of any pension savings for the tax year, but less the amount of certain lump sum death benefits paid to the individual during the tax year.” The adjusted income calculation would still include divided and interest payments.
Pension input periods
The government has also set out the period for calculating the amount of pension contributions in the current year. It said the pension input period will run from 9 July 2015 to 5 April 2016. All subsequent pension input periods will be for the tax year, starting with 6 April 2016 to 5 April 2017.
The government also said any existing unused annual allowance can be carried forward from the three previous tax years. And said every member of a registered pension scheme has an annual allowance of £80,000 for the 2015-16 tax year, though this was subject to an allowance of £40,000 for the period from 9 July 2015 to 5 April 2016.
“For some people this could open up additional opportunities to do more funding in the rest of this tax year than they thought would be possible this year,” said Adrian Walker, retirement planning manager at Old Mutual Wealth.
“The big issue for a lot of people is that they are not going to know until the end of a tax year to what extent they may be caught by the taper in their annual allowance.”
