Overview

This article by Travers Smith examines the Government’s recently issued discussion document on its alternative proposal for restricting tax relief for high earners. A final decision should be known by 30 September 2010 and is intended to take effect from 6 April 2011.

The Government's proposal is based on replacing the former Government's proposed high income excess relief charge with a significantly reduced annual allowance (in the region of £30,000 to £45,000). The proposals envisage that employers will wish to restrict or abolish DB accrual so as to avoid scheme members incurring a tax charge.

The following are the headline points:

The annual allowance charge of 40% would be replaced with a charge that varies according to the individual's marginal rate (similar to the current special annual allowance charge). The charge for basic rate tax payers might be nil.

Exemptions for pension input in the tax year benefits are taken and for those with enhanced protection would cease to apply.

The Government intends to exempt members who die or draw a serious ill health lump sum, but not members made redundant or who retire early (even on ill health grounds). The paper says that "There is scope for employers to redesign benefit packages in these circumstances", e.g. by replacing redundancy pensions with increased redundancy pay and replacing ill-health pensions with PHI.

To read on click ‘View Briefing’