Pre Budget Report 2008

On 24 November 2008, Alistair Darling delivered the 2008 pre-budget report. This report details changes that will affect pension schemes. A summary of the changes, which will be included in the Finance Bill 2009 follows:
ChangeSummaryEffective date
Personal allowance

Personal allowances will be increased as follows:

  • from £6,035 to £6,475 for those aged under 65
  • from £9,030 to £9,490 for those aged 65-74
  • from £9,180 to £9,640 for those aged 75 and over.

The income tax personal allowance will be restricted for those with incomes over £100,000. From that level of income, the personal allowance will be reduced at a rate of £1 of allowance lost for every £2 of income until the allowance is halved. At this level, the personal allowance will be worth the same as for a basic rate taxpayer.

From £140,000 income, the remaining allowance will be reduced at the same rate until those on the highest incomes have no personal allowance.

This is being introduced from April 2010, so actual figures will depend on personal allowance at that time, but if this were being applied to the standard personal allowance for 2008/09, it would mean:

  • those earning over £146,036 will have no personal allowance
  • those earning between £140,000 and £146,036 will have a personal allowance between £3,018 and zero
  • those earning between £106,036 and £140,000 will have a personal allowance of £3,018
  • those earning between £100,000 and £106,036 will have a personal allowance of between £6,035 and £3,018
  • those earning no more than £100,000 will have a personal allowance of £6,035.

As these measures increase the tax burden for those earning over £100,000, this makes investment in tax-advantaged arrangements such as pension schemes even more attractive.

6 April 2009






6 April 2010






Rate of income tax

A new additional higher rate of income tax of 45% will be introduced for those earning over £150,000. Along with the loss of personal allowance for those in this category, this would further increase the attraction of investment in pension schemes. 6 April 2011
National insurance contributions All national insurance contribution rates will be increased by 0.5%. The primary threshold at which individuals start to pay NICs will also be increased so that it is aligned with the personal allowance. 6 April 2011
Lifetime allowance

The lifetime allowance will be maintained at the 2010/11 level of £1.8 million for tax years beyond 2010/11 until 2015/16 when it will be reviewed again.

This will increase the lifetime allowance charge for funds above £1.8 million but it will also have some less obvious repercussions.

  • the limit for commutation of trivial pensions will be frozen at £18,000.
  • as one of the recycling conditions is linked to the lifetime allowance, the recycling conditions are more likely to be met
  • primary protection will be restricted as the amount of fund protected will not increase after 2010/11. Click here for further information.

Scheme specific protection of PCLS will also be affected. The calculations can be complex and the results depend upon the rate at which the fund value increases between 2010/11 and 2015/16 but in summary:

  • the protected amount of pre A-Day PCLS will be less than would be the case if the lifetime allowance had continued to increase
  • the additional PCLS from any post A-Day increase in fund value will be more than if the lifetime allowance had continued to increase
  • the overall effect is a reduction in the amount of PCLS available from a pension scheme with scheme specific PCLS protection.
6 April 2010
Annual allowance The annual allowance is also being maintained at its 2010/11 level of £255,000. This will restrict the amount of contribution to a pension scheme that can be paid without being liable for the annual allowance charge. 6 April 2010

All these measures are expected to be included in the Finance Bill 2009.

Pre Budget Report 2008

Any research and analysis has been provided by us for our own purposes and the results of it are being made available only incidentally.

The information provided is based on our current understanding of the relevant legislation and regulations and may be subject to alteration as a result of changes in legislation or practice.

1 December 2008

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The Royal London Mutual Insurance Society Limited is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. The firm is on the Financial Services Register, registration number 117672. It provides life assurance and pensions. Registered in England and Wales number 99064. Registered office: 55 Gracechurch Street, London, EC3V 0RL.