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News - 21 December 2011

Pension changes.

The one constant in Pension’s legislation is that every year something will change.

This year is no different. We will see two key pieces of legislation finalised which will have major effects on both employers and employees from a pension’s perspective.

The amounts that can be paid into pensions are changing dramatically.
All employers are going to be required to make compulsory pension contributions on behalf of their employees.

We will now look at them both.

Changes to pension contribution levels

Before April 2011, if you are earning under £130,000 pa, it was possible for you to pay up to 100 per cent of earnings, or for your employer to pay up to £255,000 into pensions, and receive tax relief up to this amount. From April 2011 this decreased to £50,000.

There is another change due in April 2012 that will affect tax relief for pension contributions. The Lifetime Allowance, which is the maximum tax favoured fund you can have in a pension scheme, will reduce from £1.8 million to £1.5 million from 6 April 2012. If you already have pension funds, which in total are worth more than £1.5 million, you may need to apply to HMRC to ring-fence your existing pension savings for tax purposes, under what is called 'fixed protection'. The application for fixed protection must reach HMRC by 5 April 2012, and it must be made on the prescribed form.

Employer duties in connection with pension contributions.

The Pension Act 2008 states that “the employer must make prescribed arrangements by which the jobholder becomes an active member of an automatic enrolment scheme”. This legislation is due to come into force in October 2012.

So, in plain English:

Every employer needs to set up a pension scheme.
Employers must enrol eligible jobholders into the scheme.
Employers must pay contributions on behalf of those jobholders at prescribed levels.
Employees can opt out but must be enrolled before opting out.

The scheme itself can either be a private qualifying workplace pension scheme (QWPS), or a National Employment Savings Trust (NEST). Employers will have to contribute three per cent of qualifying earnings for every employee, employees will have to contribute four per cent and the government will contribute one per cent.

Qualifying earnings include, overtime, bonuses, maternity pay etc and are estimated to be between £6,000 and £47,000 in 2012/2013.
If you need any help and advice with your Tax returns, contact Lavinia Newman, Stuart Coleman or Tonmoy Kumar NOW to discuss how ABDS can help in all your financial planning and business advice.

ABDS Chartered Certified Accountants of Southampton.
Tel: 023 8083 6900  E-mail: abds@netaccountants.net

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