FOR ADVISERS ONLY

2009 Budget - Treasury amendment

On 7th July the Government tabled an amendment to the proposed Finance Bill following representation from the industry that the proposed arrangements were too restrictive, particularly for self-employed clients.

Originally the Government had intended to allow protection against the new special annual allowance charge only to those who had been making existing regular payments on at least a quarterly basis.

The issue for many was that self-employed clients typically do not make regular payments. Payments are often made, or topped up, by single payments once profits are known at the end of the financial year.

Infrequent money purchase contributions

The amendment allows payments which have been made within one tax year less frequently than quarterly to count as infrequent money purchase contribution amounts.

Where the amount of the infrequent money purchase contribution amount exceeds £20,000 the special annual allowance may be increased up to a maximum of £30,000, based on the average of contributions that have been made within the last 3 tax years (2006/07, 2007/08 and 2008/09).

These amounts are not protected pension input amounts (PPIAs). The PPIA is based on regular payments only.

This means that individuals who contribute more than £20,000 in one tax year will not benefit from protection on the total of regular and single payments.

Payments up to the higher of the applicable special annual allowance (single payments) or the PPIA (regular payments) are protected against the special annual allowance charge.

Non-contracted regular payments

Ad-hoc payments which have been made at least quarterly do count as PPIAs, even where there is no regular payment contract.

The original proposal was for the amount of the PPIA to be based on the value of the lowest premium made in the tax year. This has now been amended to the median value of payments made in the tax year (see calculating the PPIA).

Clearly this is advantageous for the client and should be welcomed.

Other proposed amendments

Stephen Timms, Financial Secretary to the Treasury, has confirmed that the Government will consider two further changes to the legislation. These however were not included in the Finance Act and do not currently apply.

1. The Government has accepted representations that the cut-off date for pre-22 April contributions is too stringent and does not take into account circumstances where an individual made a single payment in good faith but that payment was not received by the administrator before the 22 April deadline.

2. The Government is also prepared to consider amending the condition that PPIAs will only be effective in the existing pension arrangement. This condition effectively prevents high-income individuals from transferring to a more suitable arrangement, for example to access more flexible retirement options.

Note - The information provided is based on our current understanding of the 2009 Budget and associated documents and may be subject to alteration as a result of changes in legislation or practice.

Published 29 July 2009