Three years passed before the Government decided to muddy the waters.

In the April 2009 budget the Chancellor announced that from April 2011, tax relief on pension contributions would be tapered down for those with incomes over £150,000, reducing to the basic rate level of 20% for people on incomes over £180,000. Anti-forestalling measures were put into place immediately, designed to prevent people making large additional pension contributions prior to the April 2011 changes.

That was then, this is now.

The new coalition Government has proposed an alternative approach to take effect from April 2011. On the face of it is looks a simpler option, whereby the annual allowance (currently £255,000) is reduced for all, to a suggested range of between £30,000 and £45,000. Any contributions up to this level would receive full tax relief applicable to the individual, with any excess subject to the annual allowance charge.

As with all changes, there are winners and losers.

Members of final-salary pension schemes would appear to fit in the latter category. This could result in an employee receiving a pay rise, which would not have triggered a tax charge under current rules, having to pay extra tax through their tax returns.

Of course, 8 months is a long time in politics, especially for a relatively new coalition government, so watch this space.

Don’t leave it to chance, call for more information on 0844 848 2277.

If you are making pension contributions from your net salary, even after the tax relief you receive you have not made up the deductions in your wages. The key is National Insurance Contributions (NIC)!

Let me give you an example…

You are a higher rate taxpayer and you are making net monthly contributions to your pension of £500.

With basic rate tax relief the gross contribution to your pension is £625. Add to that the higher rate tax relief of £125 that can then be claimed through an extension of your tax code or through self assessment, and you receive total tax relief of £250.

Sounds a good deal right?

Wrong! The gross salary you have used to pay that £500 contribution totals £847.46 when you take account of income tax and NIC at your marginal rate.

Salary Sacrifice could add over 25% extra to your pension!

Now consider that your employer makes a contribution to your pension of £847.46 which puts you in front straightaway.

The employer can offset the pension contribution against corporation tax AND also saves employers NIC of 12.8%. Persuade your employer to add the NIC savings to your pension contribution and this will result in a total contribution to your pension of £955.93.

That’s a surplus of £205.93 going into your pension each month, 27% higher than the personal contribution from your net wage!

If you want to make your pension contributions work harder for you, call for your free consultation on 0844 848 2277.