Update

The 'Emergency Budget' delivered on 22 June 2010 announced proposals to replace the current restrictions on pensions tax relief due to come into effect from April 2011.

The government has confirmed the anti-forestalling regime (currently in effect) will not be changed, so this part of the guidance note still remains relevant. The likely change from April 2011 will be to a simpler method of restricting tax relief that still allows high earners some tax efficient pension saving e.g. reducing the amount they can save each year by a new Annual Allowance.

Once we know more, probably by the autumn when the government releases details of its approach, this website and the guidance note will be updated.

Important Tax Changes

As you may have seen in the press the Government has proposed some tax changes, which will impact pension saving. These changes were originally announced in the Chancellor’s Budget speech on 22 April 2009 and then further announcements were made in the Pre-Budget Report on 9 December 2009.

The two key changes the Government has proposed are –

From April 2010 – a new 50% tax band will be introduced for taxable income over £150k.
From April 2011 – tax relief on pension contributions will reduce for taxable income over £150k.

From 22 April 2009 the Finance Act 2009 has introduced –

Transitional arrangements – these have been put in place in the lead up to the two key changes noted above and will impact anyone with taxable income above £130k.

We have worked with Mercer, a firm of professional pension advisers, to review the changes and provide guidance on what they are and broadly who might be impacted. Mercer has prepared the attached guidance note to help you understand the changes and assess if you need to take any action.

We highly recommend that you review this note and consider your circumstances.

Will this impact you?

You may be affected by the transitional arrangements if you have taxable income above £130k (this is ALL taxable income not just work-related income like salary or bonus, but any income you receive outside of work i.e. from property you own or stocks and shares you might hold etc) and fall into one of the following categories –

You are a Section 2 or 3 member who pays AVCs and has increased the monthly AVCs you pay since 22 April 2009.
You are a Section 1 member who has changed their contribution rate since 22 April 2009.
You normally make a bonus sacrifice and wish to do so again this year.
You have joined, or are intending to join, the O2 Pension Plan after 22 April 2009.

Everyone who has taxable income of £150,000 and above will be affected by the tax rate change in 2010 and subsequent tax relief changes from April 2011.

What should I do if I think I'm likely to be impacted?

We would highly recommend discussing this with your Financial Adviser who should be able to help you plan an appropriate strategy to minimise your tax liability. If you do not have a Financial Adviser then you can find one through www.unbiased.co.uk.

You should contact a member of the internal pensions management team – Jo Christie (joanna.christie@o2.com) or James Kirkland (james.kirkland@o2.com) if you would like to –

clarify any of the points raised in the guidance note;
obtain details about your current level of pension contributions; or
discuss making a change to your contributions.

What next?

Keep checking this page. We’ll let you know more about how the tax relief changes will work as and when they’re announced, along with what alternatives we might be able to offer you in 2011 when pension saving is no longer as tax efficient.