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Personal Pension Premiums - Latest Proposals at 22 February 2000

The Government has again, as part of its announcements regarding stakeholder pensions, changed its mind on it's proposals for new rules in respect of Personal Pension relief.

Carry Forward/Carry Back

• The government has decided to simplify these complicated rules from April 2001. It mainly proposes to introduce a new arrangement under which a payment made before 31 January (the filing date for a self assessment return) can on election on or before it is paid be treated as a payment for the previous tax year. Currently payment made during the following tax year can be carried back if an election is made before the next following 31 January. This brings the deadline for paying premiums to be related back forward from April 5th to January 31st and the deadline for the election itself forward by one year.
• There will be no carry forward of reliefs. It is proposed that people wishing to make contributions will in future have to plan their affairs on a "use it or lose it" basis. Use of the "earnings holiday" arrangements described below will provide some additional flexibility to them.

Earnings Holiday/Flexibility

• The Government proposes to extend the concept of the earnings holiday. Under these proposals maximum contributions will be based on the highest level of earnings in the previous five years subject to the earnings cap. Put another way earnings in a particular year can allow higher contributions for that year and the next five.
• The Government wishes to alter the amount of life assurance that can be written under pension rules. It proposes that life insurance can be included for relief as long as it does not exceed 10% of contributions paid. Currently life insurance can be included up to 5% of earnings or earnings cap.
• The Government wishes to alter rules for waiver of premium insurance in order to disallow this part of any contribution from tax relief but to allow any benefit to be treated like any other pension payment.
• The Government also wishes to allow phased vesting from a single arrangement. This will overcome the current situation where policies are divided into clusters that sometimes number hundreds or thousands of separate arrangements.
• The Government wishes to enable pension premiums of up to £3600 each tax year regardless of earnings. This will be of use to non-working wives and children. It is unlikely low earners will be able to, or want to, pay premiums although these are the people the provisions are supposed to be aimed at.
• It is almost certain that these provisions will alter before they become law. The potential for abuse is considerable and we doubt that action should be taken based solely on what is proposed particularly as the Government seem to change their mind at regular intervals.

Retirement Annuities

It appears none of the proposed changes affect the ability to pay retirement annuity premiums.

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