The Special Annual Allowance Charge introduced by Finance Act 2009 has been amended by the recent pre-budget report. The charge applies to the tax years 2009/10 and 2010/11 to individuals with relevant income in excess of £150,000 in either of these years or the two preceding years. The charge will apply on total pension contributions paid in excess of £20,000 (the Special Annual Allowance Charge threshold) or in some circumstances, a higher threshold of up to £30,000, dependent upon the level of contributions paid in previous tax years.
The PBR proposed lowering the threshold for triggering the SAA charge by reducing the relevant income level to £130,000 for any pension contributions paid on or after 9th December 2009 AND for individuals with income exceeding £130,000 the value of any employer pension contributions is to be aggregated with other income to calculate total income. Individuals will therefore now be affected if their relevant income in 2009/10 or either of the two previous years exceeds £130,000, this will apply for any contributions paid in the tax year 2009/10 after 9th December 2009.
The government has announced its intention that from 6 April 2011 tax relief on pension contributions paid by or on behalf of individuals with an annual income of £150,000 or more will be restricted. Tax relief will be tapered away so that those individuals earning £180,000 or more, relief will be the same as basic rate taxpayers i.e. 20%. Until 6 April 2011 anti forestalling provisions are being introduced to prevent individuals taking advantage of the existing regulations.
You will only be affected if:
- Your total taxable income is £150,000 or higher in the current or previous two tax years
and
- Your total pension contributions exceed £20,000 excluding your normal regular contributions
It will not affect you if:
- Your total taxable income is less than £150,000 and was less than £150,000 in previous 2 tax years
- Your total taxable income is over £150,000 and you continue only to pay existing regular pension contributions in force prior to 22 April 2009
- Your total taxable income is £150,000 or higher and your pension contributions are less than £20,000
The special annual allowance is set at an upper limit of £20,000 on additional pension savings for which full tax relief at the higher rates of income tax can be given. If this limit is exceeded the individual will be liable to a tax charge to recover tax relief above basic rate given on the additional pension savings. This will be paid through their self-assessment tax return.
The special annual allowance may be increased to a maximum of £30,000 for individuals who have paid irregular contributions in the current tax year and previous two tax years with the average of total contributions paid deemed regular contributions subject to a maximum of £30,000.
As the new rules came into effect immediately some people may find they have inadvertently exceeded the special annual allowance. Where the scheme rules allow refunds of contributions are permitted but will be liable to a 40% tax charge to recoup the rate at which tax relief was originally given. Refunds of contributions cannot be made until the following tax year in which the contribution was made.
These changes will not affect the vast majority of individuals and in respect of how Minerva SIPP handles contributions we will continue to reclaim 20% tax relief on net contributions.
Please refer to www.hmrc.gov.uk/budget2009/tax-relief-pen-cont.htm for more information.
All registered pension schemes must adopt a minimum pension age of 55 into their rules by 6 April 2010. Minerva SIPP has already amended the scheme rules and members may continue to take benefits from age 50 before 6 April 2010. If only partial benefits are taken the balance cannot be crystallised after 6 April 2010 until the member reaches age 55.
If you feel you may be affected by the change in the normal minimum pension age we strongly recommend you speak to your Financial Adviser.
Following the Newcastle Building Societies recent downgrading they have issued the following information:
You may have seen reports/articles in the press/media talking about Newcastle Building Society being downgraded. First and foremost we would like to point out that this has affected a significant number of banks and building societies who are rated by Moody's, the particular rating agency which has issued the announcement. It is not just Newcastle Building Society who has been affected; Moody's has downgraded a number of others. Furthermore the downgrade does not reflect anything specific about the Newcastle and is more a reflection of the fact that we are operating in a fierce recession.
Finally we should point out that these ratings are intended for use by wholesale investors and Newcastle Building Society, which is strongly funded with more than 70% coming from retail depositors, is far less reliant on wholesale investors than many other organisations. Indeed the FSA recently commented (in its Financial Risk Outlook) that building societies had been less weakened than large banks because they were less exposed to wholesale funding and other complex financial instruments. Retail investors should not be concerned by this. The Newcastle remains a safe place to save money.
Key points:
• This is a sector-wide downgrade and fundamentally Newcastle Building Society maintains its relative position in the sector; there is nothing particularly specific to Newcastle Building Society
• Newcastle Building Society remains investment grade
• Building Societies are not immune to the effects of recession; however it is disappointing that Moody’s does not appear to have differentiated between small banks and building societies
In view of the unprecedented Bank Base Rate drop yesterday Newcastle Building Society have withdrawn the 6 month fixed rate account with immediate effect.
Newcastle Building Society are reviewing their offering and hope to replace this very soon with a product reflective of the current markets.
Due to the current instability in the banking system the Minerva SIPP has sought from the Newcastle Building Society their present position, which is detailed in the following statement:
The lending and funding position of the Newcastle is markedly different to that of banks. As a building society, the majority of our funding (in our case in excess of 70%) comes from our customers and we are, therefore, much less reliant on the wholesale funding markets. Our members should not be concerned about the safety of their investments with Newcastle. Our current funding position is a strong one. Our annual results for last year were strong and we have recently reported a strong half year performance for the period Jan-Jun 2008.
Full details of our recent results can be found at: www.newcastle.co.uk/finance
Newcastle has no exposure to the sub-prime and self-cert sectors, very low exposure to buy to let, and a cautious approach to commercial lending. We have only one very small acquired mortgage book. We operate with high levels of retail funding and benefit from a diversified income base through our subsidiary, Strategic Solutions.
The Minerva SIPP has now received Appropriate Personal Pension Scheme status under ASCN 7001427T and is now able to accept transfers in of Protected Rights.
HMRC have today announced that protected rights benefits may be held within SIPP's and used for self investment purposes with effect from 1st October 2008. SIPP's must obtain Approriate Personal Pension status before they may accept protected rights funds and it is expected that most existing scheme's will make application for appropriate status prior to 1st October.
The funds are required to be ringfenced but other than that no other restrictions apply with full self investment options. Protected Rights benefits which have already been crystallised via unsecured pension may also be transfered to a SIPP via a drawdown to drawdown transfer option.
The basic rate of income tax will be reducing from 6th April 2008. The Budget Report 2007 announced that the basic rate of income tax would be reduced from 22% to 20% from 6th April 2008, the higher rate of 40% will remain the same whilst the starting rate of 10% will be removed completely. The reduction in the basic rate of income tax will effectively reduce the tax relief the Government will pay towards your pension. Therefore gross contributions will automatically reduce unless net contributions are increased to continue to achieve the current gross amounts.
Provisions contained in Finance Act 2007 are the first step to the Government abolishing the option of Contracting Out of the State 2nd Pension in the form of Protected Rights benefits. These provisions will primarily affect Contracting Out via an appropriate Personal Pension Scheme and Contracted Out Money Purchase (COMP) Schemes with the likely effective date of 2012. Existing Protected rights funds may remain and more importantly, the proposals remove many of the restrictions imposed on Protected Rights, in particular, investment of funds and it is likely that Protected Rights benefits will shortly be capable of use within Self Invested Personal Pensions without any investment restrictions. It would appear that the only requirements to be imposed upon Protected Rights benefits being the provision of survivor benefits, SIPP administrators will therefore need to ensure that their systems are capable of identifying and tracking such benefits. InvestAcc fully intend to allow Protected Rights transfers into Minerva SIPP as soon as the legislation permits, which could be as early as 2009.
There has been a great deal of confusion caused over the issue of members changing individual pension input periods and the impact this has on the annual allowance and tax relief. Changing the pension input period itself does potentially allow higher levels of pension contributions without affecting the annual allowance tax charge, however, great care has to be taken with regard to tax relief, members should bear in mind that tax relief on contributions paid and the annual allowance are two separate issues, for example, if the pension input period is altered for the tax year 2007/08, in theory this could allow a member to contribute a total of £460,000, being the annul allowance for £2007/08 (£225,000) and 2008/09 (£235,000). However, to qualify for tax relief on such a contribution, taxable earnings of £460,000 would be required in the tax year 2007/08.