This is the first tax year-end in which the new £ 50,000 annual allowance and carry forward rules need to be taken into account when planning year-end pension contributions. April 5th will be the last date on which you can use unused relief on contributions of up to £ 50,000 from 2008/09, as the carry forward is limited to three tax years. How much unused relief you have available can be a complex calculation, so, if you think carry forward could be relevant, start seeking advice as soon as possible.
Maximising contributions now by using carryforward could be particularly valuable if you are opting for fixed protection,because of the cap this option places on future contributions and benefit accrual.
The standard lifetime allowance, which effectively sets a limit on the normal tax-efficient maximum value of your pension benefits, will fall from £ 1.8m to £ 1.5m from 6th April 2012. The move was legislated for last year along with provisions for a special transitional relief, ‘fixed protection’, which allows you to keep your personal lifetime allowance at a minimum of £ 1.8m.
Unfortunately, fixed protection is not the get-out-of-jail card which at first it appears. If you opt for fixed protection, you cannot retain an older transitional relief, enhanced protection. More significantly,fixed protection will be lost if, after 5th April 2012, further pension contributions are made or you accrue extra benefits. Thus fixed protection is only likely to be relevant to you if you have already built up substantial pension benefits. Even then, careful calculations are required before making a final decision.
Fixed protection is part of year-end planning because 5th April 2012 is the final date to register a claim.
If you are currently contracted out of the State Second Pension (S2P) via a personal pension, from 6th April 2012 you will find yourself placed back into S2P. After the end of 2011/12 contracting out will only be possible via final salary pension schemes, which have largely disappeared from the private sector.
Whether it is worth enjoying a final year of contracting out with a personal pension depends upon your individual circumstances. Successive governments have reduced the financial benefit of personal pension contracting out to zero for most people – hence its imminent disappearance – so you might be better served to opt back into S2P for 2011/12 rather than wait for the default move on 6th April.