Carry forward rules to benefit UK higher earners, it is claimed

Higher earners whose pension contributions have previously been restricted are being urged to maximise their contributions this tax year via the new carry forward rules that came into effect on 06 April 2011.

In the previous two tax years anyone earning above £130,000, had to adhere to pension contributions of either £20,000 or £30,000 per annum. But the new carry forward rules allow individuals to carry forward any unused annual allowance from the previous three tax years. The annual allowance for these years is set at £50,000.
 
According to SIPP providers Alliance Trust Savings, an individual who has maximised their contributions in the previous tax years could still contribute up to £110,000 at a net cost to them of only £55,000.

Its experts say this is possible because many high earners will have been restricted to making a maximum contribution of £20,000 over the last two tax years meaning they have £60,000 unused allowance to carry forward. Adding this unused allowance to their current annual allowance of £50,000 for the 2011/12 tax year would allow them to contribute £110,000 this tax year.
 
With the Government confirming that the 50% tax rate is only temporary it may be prudent for individuals to maximise their pension contributions and tax benefits now, they point out.

Maximising pension contributions is one method of ensuring a healthy pension fund at retirement. Another is to ensure your pension is cost effective in terms of fund rebates and fees. Alliance Trust Savings Select SIPP rebates 100% of commissions received from fund providers back to the individual's SIPP. A £110,000 contribution could be worth up to £199,600 after 10 years. Comparing these figures to a provider that crucially retains the rebates, an individual's contribution could be worth up to £11,700 more with the Alliance Trust Savings Select SIPP, it claims.

‘The new carry forward rules represent a real opportunity for higher earners to maximise their pension contributions and regain some lost ground experienced due to the anti forestalling restrictions,’ said Steve Latto, head of Pensions at Alliance Trust Savings.

‘With the higher 50% rate of tax being temporary the new carry forward rules will allow individuals to maximise their contributions and the associated benefits. As well as maximising contributions individuals should also ensure that their pension is cost effective to further bolster the potential value of their contributions over time,’ he added.