By Sharon Grubb, Financial Planning Manager at Smith & Williamson

The amount you can put into your pension which attracts tax relief will fall substantially from 6 April 2011. Here are some key action points which higher earners and anyone approaching retirement should urgently consider.

Many will remember the great upheaval surrounding pensions when new rules were introduced in 2006. As a result, individuals can, broadly, invest up to £255,000 pa up to a maximum lifetime allowance of £1.8m while continuing to receive tax relief on pension contributions.

Further changes were announced to restrict the value of tax relief on pension savings from 6 April 2011 for people earning £130,000 pa or more. However, the Coalition Government has now sought to simplify the pension regime.

From 6 April 2011, while any amount can be paid into your pension pot, the amount eligible for relief will be strictly limited. The key changes are:

• The annual allowance for tax-privileged saving will fall from its current level of £255,000 to £50,000.

Tax relief will be available at the individual’s marginal rate of tax.

• There will be a three-year carry forward rule so you will be able to carry forward unused annual allowances. Therefore, even if your pension investment exceeds £50,000 in a particular year, the annual allowance restriction might not apply.


There are provisions (known as anti-forestalling rules) to discourage people from investing large amounts into their pension before the new rules take effect. In addition, the lifetime allowance will fall from £1.8m to £1.5m from 6 April 2012.

Important steps to consider and act on before 6 April 2011

• Consider how you can maximise your available pension relief under the current regime.

• Where the anti-forestalling rules currently restrict your tax-favoured contributions to under £50k, consider deferring that element of the payment until after 6 April 2011.

• There may be merit in making a large one-off payment before 5 April to obtain relief at basic rate rather than waiting until the reduced annual allowance applies.

If you think you could be affected by these changes and would like advice, call Sharon Grubb on 01722 434887 or email sharon.grubb@smith.willamson.co.uk

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