The main features of the proposed new regime are:
- Annual allowance reduced to £50,000 from April 2011, affecting active members of DB and DC schemes, with a flat-rate ratio of 16:1 to be used to calculate DB accrual;
- Carry forward of unused annual allowance from up to three previous years to offset against any excess contribution;
- Lifetime allowance reduced to £1.5m from April 2012, with some protection for those who have already built up pension benefits based on the current allowance of £1.8m.
The Treasury’s July consultation document suggested reducing the annual allowance to £40,000 but the Government has decided that a reduction to £50,000 is feasible in conjunction with a reduction of the lifetime allowance. It therefore expects that its proposals will affect fewer individuals on low incomes.
Although the proposals are considerably less complex than those of the previous Government (to be repealed), they are not simple, and there are numerous implications for employers, trustees and scheme members.
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