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Further pension reform

The Government has said it will review the pension tax relief restrictions introduced in the 2010 Finance Act. The Government has suggested an annual allowance of between £30,000 and £45,000 could be a more viable solution.

The Chancellor George Osborne has decided that there will be no changes to the restrictions for those earning over £130,000 at this time, as the existing regime broadly protects against forestalling risks. The Government will continue to actively monitor the anti forestalling regime and, if necessary, act in future in order to protect tax revenue at risk.

The Government wishes to raise at least the same amount of revenue through restricting pensions tax relief as has already been accounted for in the public finances over the forecast period. The level required would however be influenced by a number of policy design features in the revised regime, including the appropriate level of the lifetime allowance.

The Government will consult with employers, pension schemes, experts and other interested parties to ensure the various features of a much lower annual allowance are revised fairly and to determine the best design of a regime, looking at a wide range of issues that will need further consideration such as:

  • How pension accrual in defined benefit schemes would be valued;
  • Whether and how there could be flexibility for overpayment;
  • Options to protect basic rate taxpayers from the restriction in different circumstances; and
  • How compliance and delivery would operate in practice.

Enabling legislation will be introduced before the summer recess to repeal the rules contained in the Finance Act 2010. However, repeal will only occur once the Government has come to a final decision on its alternative approach.

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