|
|
| |
Personal Pensions - Changes to the Tax Legislation
This information sheet is designed to provide policyholders with details of the legislation changes that will take effect from 6 April 2001. If you require any advice as to how these changes may affect your policy, please contact us. |
| |
Self-Employed Policyholders- Self-employed individuals will now pay all contributions NET of basic rate income tax.
- Contributions which are elected back to 2000/2001 tax year will also be payable NET of basic rate income tax.
The rest of this information sheet therefore applies to both employee's and self-employed. |
| |
Threshold/Contribution Limits
In general, contributions up to £3,600 (gross) each tax year can be made to Personal Pension Plans (PPP) without the need for the policyholder to either have, or to submit evidence of earnings. This means that it is possible to pay up to £2,808 each year, or £234 each month, (net of the current basic rate tax, irrespective of an individual's net relevant earnings.) |
| |
| Where the threshold of £3,600 per annum is exceeded, contributions will be limited each year in accordance with the existing rules and will require the policyholder to provide evidence of earnings to support this level of contribution. Regular and single contributions to all companies providing pension benefits must be taken into consideration. |
| |
The £3,600 threshold applies to the total of- Individual contributions
- Employer contributions
- Self-employed contributions
- Premiums for waiver of contributions benefit (on policies effected prior to 6 April 2001)
- Personal pension life assurance premiums
- Contributions to retirement annuity contracts (e.g. Self-Employed Retirement Plans)
- Stakeholder contributions
- Contributions to occupational pension schemes that have opted into the new defined contribution tax regime
|
| |
The threshold does NOT include:- National Insurance Contributions Office rebate contributions
- Premiums to occupational pension schemes which provide life cover only
- Free-Standing Additional Voluntary Contributions and Additional Voluntary Contributions
- Contributions to occupational pension schemes that have not opted into the new defined contributions tax regime
- Waiver contributions paid to a separate contract (on policies effected after 5 April 2001)
This threshold will be periodically reviewed |
| |
Earnings/Basis year
If contributions exceed £3,600 per tax year, the evidence of earnings will be required to support the contributions. The policyholder may nominate either the current tax year or one of the previous five tax years to be used as the 'Basis Year' for earnings. Once evidence has been supplied, it may be used to justify contributions above £3,600 for the 'Basis Year' and the following five tax years |
| |
| If earnings in a subsequent tax year are higher than in the current basis year, that later year may be nominated as the new 'Basis Year' on production of the appropriate evidence. In any event, new evidence will be required for the sixth tax year after the current 'Basis Year' if contributions are to continue above the £3,600 threshold. |
| |
Eligibility
From 6 April 2001, Certificates of Eligibility will no longer be required. It will be the responsibility of the policyholder to advise us of changes to their circumstances such as:- If there is a change of employer
- If there is a change in employment status (e.g. they become employed, unemployed or self-employed)
- If they become or cease to be a controlling director
- If they leave or join an occupational pension scheme
- Waiver contributions paid to a separate contract (on policies effected after 5 April 2001)
- If they are no longer resident in the UK
- If they become resident again in the UK after living abroad
|
| |
| In these circumstances, regardless of how much they are contributing, the policyholder will be required to sign a declaration, which will confirm that they are eligible. |
| |
| Eligibility to contribute to a Personal Pension Plan (PPP) will depend on satisfying the residency and where necessary, concurrency rules (see next section). |
| |
Residency
These rules govern who is entitled to contribute to a PPP. To be eligible to start a PPP from 6 April 2001, an individual must either have UK net relevant earnings, or fall into one of the following residency categories:- Resident and ordinarily resident in the UK
- A Crown Servant*
- a Crown Servant's* spouse
*Individuals who are working abroad and are paid out of the public revenue of the UK. |
| |
| If, in the future, a policyholder moves abroad and no longer has net relevant earnings but has been a UK resident in one of the preceding five tax years, contributions can continue up to the threshold of £3,600 per tax year for five additional tax years following the one in which they moved abroad. |
| |
Concurrency
A policyholder can now be a member of an Occupational Pension Scheme (OPS) and still contribute to a PPP in respect of the same employment provided- The OPS is for Life Cover only or
- The PPP is for contracted-out contributions only or
all of the following conditions* are satisfied: - The policyholder is not a controlling director, and has not been at any time in the year of question or in the previous five tax years (ignoring tax years prior to 2000/2001) and
- The policyholder has had total gross earnings not exceeding £30,000 in at least one of the preceding five tax years (ignoring tax years prior to 2000/2001), and
- At some time in the relevant year, the policyholder is either resident and ordinarily resident in the UK, or is overseas as a Crown Servant or as the spouse of a Crown Servant.
*Policyholders who qualify on these grounds are limited to contributing up to the £3,600 per annum threshold. |
| |
| Pension providers must be notified if there is any change to the policyholders circumstances which may result in them not complying with the residency and concurrency rules. |
| |
Waiver of Contributions
Waiver of contributions refers to the payment of an additional premium to safeguard pension contributions in the event of the policyholder becoming incapacitated and consequently being unable to afford them.
Existing policies with a waiver option will be entitled to retain waiver on the existing basis. |
| |
From 6 April 2001, a waiver of contribution option will not be permitted as a part of any new Personal Pension Plans. From 6 April 2001, if a waiver option is required, a separate waiver product may be started.
It will be possible to add a waiver option to existing (pre 6 April 2001) policies, provided the policy terms allow it as an option. |
| |
Please note
It is recommended that you contact us if you wish to consider taking out a new waiver product.
advice@investmentfocus.com |
| |
Pension Term Assurance
Pension Term Assurance contribution limits will change from 6 April 2001.
Existing Pension Term Assurance policies will continue to have premiums limited to 5% of net relevant earnings.
New Pension Term Assurance policies from 6 April 2001 will have premiums limited to 10% of the total of all relevant pension contributions each tax year. This applies to any new policy irrespective of whether the policyholder already has a pre-6 April 2001 Pension Term Assurance policy in force. |
| |
Carry Forward/Carry Back
The carry forward and carry back facilities were designed to ensure that policyholders could fully utilise their tax relief allowances and maximise their contributions for each tax year, even retrospectively. Because of the new more flexible contribution rules outlined above, these rules are changing from 6 April 2001.- Carry Forward is abolished from 6 April 2001 (except where it is used in conjunction with carry back to tax year 2000/2001).
- It will only be possible to Carry Back to the previous tax year from 6 April 2001.
- Only contributions paid between 6 April and 31 January (inclusive) in a tax year can be carried back
- The election must be made either before, or at the same time as, the contribution is paid.
|
| |
Status (of new policyholders)
From 6 April 2001, pension providers are required by the Inland Revenue to find out the employment status of new policyholders taking out Personal Pension Plans. For this there will be a new section in the application form from 6 April 2001, which will ask policyholders to confirm their employment status from a list of options. |
| |
