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Pensions

Probably the one issue I've heard most about is the proposal to limit tax relief on pension contributions made by those with income over £150,000, from 2011. The concerns cover the principle of changing the tax rules so soon after the major reform of pensions in 2006; how the restriction in relief could work in practice; considerable unfairness from the draft fore-stalling rules.

It's perhaps understandable that if the Government wants to change the rules in two years' time, it needs to do something to prevent people circumventing the change, by paying huge extra pension contributions this year and next. However, a great many people make annual contributions, rather than the quarterly or monthly contributions allowed by the Treasury. For many, it's because they only make contributions when they know their actual income - or when they have the cash available in their business. For others, it may be that the terms offered by pension providers favour one-off contributions, rather than regular contributions. More problems arise for people who start new personal pensions; they are not treated as regular contributions, even if they replace another pension, with identical contribution levels. There's a stark contrast with anyone who joins a new company (or the Civil Service), as company/public service contributions at standard levels do not get caught by the proposals.

The Government does propose a minimum amount of £20,000 that would be allowable in any event, but £20,000 pa is about the amount to build a 2/3 pension for a forty year-old earning £45,000, according to the Guardian's calculator.

Problems also arise for someone with income less than £150,000 threshold - but who exceeded it in 2007-08. They could still find the rules limiting their deductions

Someone earning, say, £145,000 gets 40% tax relief on pension contributions, whereas someone earning £185,000 seems to get only 20% relief. That hardly seems a fair answer.

Let's hope that HM Revenue & Customs listens to reprentations to make the scheme more reasonable in practice. If you want to write to HMRC, the contact is Martyn Rounding.