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Chance for pension investors to boost their funds

Chance for pension investors to boost their funds

Category: Pensions

Updated: 05/10/2012
First Published: 28/11/2011

This article was correct at the time of publication. It is now over 6 months old so the content may be out of date.

A new interpretation of pension rules means investors have been given a golden opportunity to significantly increase pension funds in retirement.

Rules about carrying pension contribution allowances forward have been changed, giving pensions investors a great chance to increase their nest eggs, according to AJ Bell.

The new rules to carry forward pension contributions allows investors to make contributions in the current tax year where they have paid in less than £50,000 in any of the previous three tax years.

Where no contributions have been paid in the previous three tax years, investors can now pay in up to an additional £150,000 to bump up their pension pots.

The previous interpretation of the rules meant that an investor who had contributed more than £50,000 in either 2009/10 or 2010/11 was deemed to use up some of their annual allowance from earlier tax years, reducing the carry forward available to them now.

But that has now changed, meaning the annual allowance from earlier tax years is not used up where the £50,000 limit has been exceeded in either 2009/10 or 2010/11.

Figures show that an investor with contributions totalling £150,000 in 2010/11 would not have been able to make use of carry forward in respect of either the 2008/09 and 2009/10 tax years under the old interpretation of the rules.

The carry forward option is now available to them meaning they could potentially pay in up to £100,000 in carry forward contributions in the current tax year.

"This is an important change for any investors who intend to make use of the carry forward rules in the current tax year," Gareth James, technical marketing manager at A J Bell said.

"The old interpretation of the rules penalised those who had made sizeable contributions in the last couple of tax years. This change will provide investors with an opportunity to make larger contributions than had previously been the case.

"We've been working under the old guidance for more than six months so it is likely that the old interpretation of the rules was how the Government had intended them to operate. It is interesting that the new guidance has been released just before the Chancellor's Autumn Statement.

"If the rules are changed again tomorrow it is reasonable to question the timing of this announcement."

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