Fact sheet two: Restrictions on higher rate tax relief for pension contributions in tax years 2009/10 and 2010/11

Transcription

1 Fact sheet two: Restrictions on higher rate tax relief for pension contributions in tax years 2009/10 and 2010/11 You should read this fact sheet if your relevant income has exceeded or will exceed 130,000 in tax year, 2007/08, 2008/09, 2009/10 or 2010/11. If your relevant income has exceeded or will exceed 150,000 in tax year 2007/08, 2008/09 or 2009/10, you should refer to section A. If your relevant income has exceeded or will exceed 130,000 in tax year 2007/08, 2008/09, 2009/10 or 2010/11 but has been and will continue to be below 150,000 in tax year 2007/08, 2008/09 and 2009/10, you should refer to section B. This fact sheet summarises the restrictive measures which apply to pension contributions (and/or accrual in a defined benefit pension arrangement) made between 22 April 2009 (9 December 2009 if your relevant income is between 130,000 and 150,000) and 5 April 2011 so that you can consider the potential consequences for your pension contributions to the Walt Disney Retirement Savings Plan ( the Plan ) during this period. The restrictions typically relate to any decision to increase the level of your existing contributions to the Plan. The initial restrictions (announced on 22 April 2009) applied to those with relevant income of 150,000 or more. These restrictions are outlined in section A of this fact sheet. Additional announcements were made in the Pre Budget report on 9 December 2009 which impact those with relevant income of 130,000 or more. These restrictions are outlined in section B of this fact sheet.

2 Factsheet two, section A: Restrictions on higher rate tax-relief on pension contributions for those with relevant income of 150,000 or more (in the current or either of the previous two tax years) What are the restrictions? Restrictions apply with effect from 22 April 2009, to discourage individuals from increasing their existing pattern of pension contributions (referred to, in this fact sheet, as normal ongoing regular pension savings) in the tax year 2009/10 and/or 2010/11. The restrictive measures put an annual limit (the special annual allowance) on the amount of pension savings made for or by high earners which will benefit from higher rate tax-relief. To whom will the restrictive measures apply? The Finance Act 2009 introduced a tax charge (the special annual allowance charge), which will apply from 22 April 2009 to 5 April 2011, on pension savings made by or for High Income individuals who change their normal ongoing regular pension savings AND who also meet the following two criteria: i. have relevant income of 150,000 or more for the tax year in which the pension contributions are made and/or for either of the previous two tax years; AND ii. make total pension savings in excess of a special annual allowance (usually 20,000 but up to 30,000 in special cases) for the tax year. Your pension savings will include the gross amount of employee and Company funded pension contributions to a defined contribution pension arrangement such as the Walt Disney Retirement Savings Plan (and any personal pension/sipp arrangements you may have) plus the value of any accrual in a defined benefit pension scheme. This fact sheet focuses on contributions to the Walt Disney Retirement Savings Plan (a defined contribution pension arrangement). If you have been an active member of a defined benefit scheme and/or any other private pension arrangement in the 2009/10 and/or 2010/11 tax year, you should seek advice on the implications of the tax restrictions taking into account your defined benefit accrual/private pension provision. How will I know if I am entitled to an increased special annual allowance? The special annual allowance for pension savings has been set at 20,000 for tax year 2009/10 and 2010/11. However, if you paid money purchase contributions prior to 6 April 2009 on an infrequent (less than quarterly) basis and the average of such contributions exceeded 20,000 each year over the period from 6 April 2006 to 5 April 2009, your special annual allowance for pension savings will increase from 20,000 to the lower of 30,000 and the average of your infrequent contributions paid in tax years 2006/07, 2007/08 and 2008/09. Normal ongoing regular pension savings (paid quarterly or more frequently prior to 22 April 2009) receive specific protection from the special annual allowance charge. As such, regular contributions paid in tax years 2006/07 to 2008/09 are excluded when calculating any entitlement to an increased special annual allowance. However, normal ongoing regular pension savings paid in tax year 2009/10 and 2010/11 will still use up part or all of your special annual allowance each tax year. What is the special annual allowance charge? The special annual allowance charge will be at 20% in the 2009/10 tax year in order to recover the difference between basic and higher rate tax on contributions paid by you and/or by Walt Disney (the Company ) on your behalf. For the 2010/11 tax year, the maximum special annual allowance charge will increase from 20% to 30% due to the introduction of a 50% top rate of personal income tax.

3 What is the impact for existing members of the Plan? If your relevant income exceeds 150,000 and you were an existing member of the Plan on 22 April 2009, specific protection from the special annual allowance charge will be available for normal ongoing regular pension savings (paid at least quarterly) which were in place as at 22 April 2009 and remain unchanged (such as your regular monthly contributions to the Plan which you had commenced to pay prior to 22 April 2009). As such, no special annual allowance charge will apply to such contributions even if they exceed your special annual allowance (usually 20,000). Protection will also be available for automatic increases to your minimum contribution rate and the Company contribution rate due to you crossing a Plan age threshold and/or being promoted to Director level. In addition, assuming you previously paid contributions as a fixed percentage of Pensionable Salary, any increase to the monetary value of your contributions as a result of any increase in your Pensionable Salary will be part of your normal ongoing regular pension savings and will not be viewed as an increase in your pension savings. However, any increase in your contributions and/or any one-off contribution paid on or after 22 April 2009 which: is not a continuation of contributions paid quarterly or more frequently prior to 22 April 2009; AND does not represent an increase to your minimum contribution rate due to you receiving an increase in Pensionable Salary, reaching a new age threshold and/or being promoted to Director level will be viewed as an increase in your normal ongoing regular pension savings. As such, these increased contributions may suffer a special annual allowance charge if your total pension savings exceed your special annual allowance (usually 20,000). Please note that any contributions eligible for specific protection from the special annual allowance charge will still count towards your special annual allowance. As such, if your protected pension savings exceed your special annual allowance (usually 20,000) any additional contributions which are not eligible for specific protection from the special annual allowance charge will be subject to the charge. What is the impact for new members of the Plan (who join on or after 22 April 2009)? If your relevant income exceeds 150,000 and you join the Walt Disney Retirement Savings Plan on or after 22 April 2009, if you continue to pay the same rate of contributions (which you paid into a previous employer s pension arrangement) into the Walt Disney Retirement Savings Plan, there will be no specific protection for such contributions.* Instead, the minimum required contributions paid by you and the core contributions paid by the Company will usually receive specific protection from the special annual allowance charge. (In order for such contributions to qualify for specific protection from the special annual allowance charge, at least 20 employees, employed by the same employer within Walt Disney must pay and receive contributions at the same rate. If there are less than 20 employees in your contribution group, you will need to discuss this with the Company before joining the Plan. *Please note, if you previously paid regular contributions into a private pension arrangement and/or you are able to continue to contribute to a previous arrangement, continued contributions into such an arrangement may be protected as normal ongoing regular pension savings.

4 Although certain contributions are eligible for specific protection from the special annual allowance charge, such contributions still count towards your special annual allowance. As such, if your protected pension savings exceed your special annual allowance (usually 20,000) any additional contributions which are not eligible for specific protection from the special annual allowance charge will be subject to the charge. Some examples of when the special annual allowance charge may and may not apply to contributions to the Walt Disney Retirement Savings Plan are included below: Andrew Andrew has relevant income of 100,000 in 2007/08, 105,000 in 2008/09 and 110,000 in 2009/10. Since Andrew s relevant income is less than 150,000 (and less than 130,000-see section B of this fact sheet for further details) in each of the 3 tax years, Andrew is not affected by the special annual allowance charge, regardless of the level of his pension savings. Brian Brian has relevant income of 180,000 including Pensionable Salary of 122,000 in 2009/10. Brian s employer and employee regular monthly contributions to the Plan amount to 20% of Pensionable Salary ( 2, per month and 24,400 each year) and these were in place as at 22 April Brian receives an increase in his annual Pensionable Salary to 125,000 such that his monthly contributions increase to 2, per month ( 25,000 each year). Brian (a) has had relevant income of 150,000 or more in one of the relevant tax years; AND (b) his normal ongoing regular pension savings already utilise his special annual allowance (prior to the additional contributions). However, Brian has not changed the rate at which he pays pension contributions on or after 22 April As such, no special annual allowance charge will apply to the increase in Brian s pension contributions. Cheryl Cheryl has relevant income of 160,000 including Pensionable Salary of 123,600. Prior to 22 April 2009, Cheryl paid 4% employee contributions to the Plan and received Company contributions of 11% of her Pensionable Salary each month. Cheryl celebrates her 55 th birthday on 15 May 2009 such that her Company funded contributions increase to 13% of her Pensionable Salary from 1 June Cheryl s contributions total 20,806 in 2009/10 and 21,012 in 2010/11. However, the increase in the rate of Cheryl s contributions is due to an automatic increase on crossing an age threshold. Cheryl has made no other changes to her pension contribution rate on or after 22 April As such, no special annual allowance charge will apply to the increase in Cheryl s pension contributions.

5 Diane Diane s annual relevant income is usually below 130,000. However, in September 2008, Diane received a taxable bonus payment of 40,000 which resulted in relevant income of 170,000 for tax year 2008/09. Diane s employer and employee regular monthly contributions to the Plan amount to 25,000 (and these were in place as at 22 April 2009). In June 2009 Diane decided to increase her contributions to the Plan such that she pays additional contributions of 5,000 in 2009/10 and 2010/11. Diane (a) has had relevant income of 150,000 or more in one of the relevant tax years; AND (b) has increased her pension contributions after 22 April 2009; AND (c) has normal ongoing regular pension savings which already utilise her special annual allowance (prior to the additional contributions). Therefore Diane must pay the special annual allowance charge on the additional 5,000 paid in tax years 2009/10 and 2010/11. Edward Edward has relevant income of 175,000 in 2009/10 including Pensionable Salary of 120,000. Edward joined the Walt Disney Retirement Savings Plan from 1 June 2009 (having ceased contributions to a previous employer s pension arrangement on 30 May 2009). As a 40 year old employee, Edward s normal ongoing regular pension savings eligible for specific protection from the special annual allowance charge are the 3% minimum employee contributions he must pay to join the Plan and the 8% core Company contributions paid on his behalf. These contributions to the Walt Disney Retirement Savings Plan amount to 12,100 in total in the 2009/10 tax year. Edward and his previous employer also paid contributions into his previous employer s pension arrangement. Such contributions totalled 5,000 in 2009/10. The contributions paid into Edward s previous employer s pension arrangement are irrelevant for the purpose of establishing the rate of his normal ongoing regular pension savings. However, these contributions will utilise part of his special annual allowance in 2009/10. As such, Edward only has scope to pay contributions up to 2,900 (his special annual allowance of 20,000 less 12,100 into the Walt Disney Retirement Savings Plan and 5,000 into his previous employer s arrangement) before he will pay a special annual allowance charge on additional contributions. Who is responsible for reporting and paying the special annual allowance charge? The responsibility for reporting and paying the special annual allowance charge rests solely with you. If you have paid/received contributions which are subject to the special annual allowance charge, you must include details of these contributions on your Self Assessment Tax Return for the relevant tax year and pay the special annual allowance charge directly to HMRC. Please note that this fact sheet is based on our current understanding (as at January 2010) of Government legislation and guidance. Further guidance may be issued in the future. This fact sheet is not intended to give financial or taxation advice. If you are unsure how the tax restrictions on pension contributions impact you, you should seek independent financial advice.

6 Fact sheet two, section B: Restrictions on higher rate tax-relief on pension contributions for those with relevant income between 130,000 and 150,000 (in the current or either of the previous two tax years) Please note, if your relevant income has exceeded 150,000 in tax year 2007/08, 2008/09 OR 2009/10, you should refer to section A of this fact sheet. What are the restrictions? Restrictions apply with effect from 9 December 2009, to discourage individuals from increasing their existing pattern of pension contributions (referred to, in this fact sheet, as normal ongoing regular pension savings) in the tax year 2009/10 and/or 2010/11. The restrictive measures put an annual limit (the special annual allowance) on the amount of pension savings made for or by high earners which will benefit from higher rate tax-relief. To whom will the restrictive measures apply? The Pre-Budget Report in December 2009 extended the application of a tax charge introduced in Budget 2009 (the special annual allowance charge), to apply to pension savings made by or for anyone with relevant income of 130,000 or more. The special annual allowance charge will apply between 9 December 2009 and 5 April 2011 to High Income Individuals who change their normal ongoing regular pension savings AND who also meet the following two criteria: i. have relevant income of 130,000 or more for the tax year in which the pension savings are made and/or for either of the previous two tax years; AND ii. have total pension savings in excess of a special annual allowance (usually 20,000 but up to 30,000 in special cases) for the tax year. Your pension savings will include the gross amount of employee and Company funded pension contributions to a defined contribution pension arrangement such as the Walt Disney Retirement Savings Plan (and any personal pension/sipp arrangements you may have) plus the value of any accrual in a defined benefit pension scheme. This fact sheet focuses on contributions to the Walt Disney Retirement Savings Plan (a defined contribution pension arrangement). If you have been an active member of a defined benefit scheme and/or any other private pension arrangement in the 2009/10 and/or 2010/11 tax year, you should seek advice on the implications of the tax restrictions taking into account your defined benefit accrual/private pension provision. How will I know if I am entitled to an increased special annual allowance? The special annual allowance for pension savings has been set at 20,000 for tax year 2009/10 and 2010/11. However, if you paid money purchase contributions prior to 6 April 2009 on an infrequent (less than quarterly) basis and the average of such contributions exceeded 20,000 each year over the period from 6 April 2006 to 5 April 2009, your special annual allowance for pension savings will increase from 20,000 to the lower of 30,000 and the average of your infrequent contributions paid in tax years 2006/07, 2007/08 and 2008/09. Normal ongoing regular pension savings (paid quarterly or more frequently prior to 22 April 2009) receive specific protection from the special annual allowance charge. As such, regular contributions paid in tax years 2006/07 to 2008/09 are excluded when calculating any entitlement to an increased special annual allowance. However, normal ongoing regular pension savings paid in tax year 2009/10 and 2010/11 will still use up part or all of your special annual allowance each tax year.

7 What is the special annual allowance charge? The special annual allowance charge will be at 20% in the 2009/10 tax year in order to recover the difference between basic and higher rate tax on contributions paid by you and/or by Walt Disney (the Company ) on your behalf. For the 2010/11 tax year, the maximum special annual allowance charge will increase from 20% to 30% due to the introduction of a 50% top rate of personal income tax. However, you will only pay the maximum special annual allowance charge if you have received 50% income tax relief on your pension contributions. What is the impact for existing members of the Plan? If your relevant income is between 130,000 and 150,000 and you were an existing member of the Plan on 9 December 2009, specific protection from the special annual allowance charge will be available for normal ongoing regular pension savings which were in place as at 9 December 2009 and remain unchanged (such as your regular monthly contributions to the Plan which you had commenced to pay prior to 9 December 2009). Protection will also be available for automatic increases to your minimum contribution rate and Company contribution rate due to you crossing a Plan age threshold and/or being promoted to Director level. In addition, assuming you previously paid contributions as a fixed percentage of Pensionable Salary, any increase to the monetary value of your contributions as a result of any increase to your Pensionable Salary will be part of your normal ongoing regular pension savings and will not be viewed as an increase in your pension savings. However, any increase in your contributions and/or any one-off contribution paid on or after 9 December 2009 which: is not a continuation of contributions paid quarterly or more frequently prior to 9 December 2009; AND does not represent an increase to your minimum contribution rate due to you receiving an increase in Pensionable Salary, reaching a new age threshold and/or being promoted to Director level will be viewed as an increase in your normal ongoing regular pension savings. As such, these increased contributions may suffer a special annual allowance charge if your total pension savings exceed your special annual allowance (usually 20,000). Please note that any contributions eligible for specific protection from the special annual allowance charge will still count towards your special annual allowance. As such, if your protected pension savings exceed your special annual allowance (usually 20,000) any additional contributions which are not eligible for specific protection from the special annual allowance charge will be subject to the charge. What is the impact for new members of the Plan (who join on or after 9 December 2009)? If your relevant income is between 130,000 and 150,000 and you join the Walt Disney Retirement Savings Plan on or after 9 December 2009, if you continue to pay the same rate of contributions (which you paid into a previous employer s pension arrangement) into the Walt Disney Retirement Savings Plan, there will be no specific protection for such contributions.* Instead, the minimum required contributions paid by you and the core contributions paid by the Company will usually receive specific protection from the special annual allowance charge. (In order for such contributions to qualify for specific protection from the special annual allowance charge, at least 20 employees, employed by the same employer within Walt Disney must pay and receive contributions at the same rate. If there are less than 20 employees in your contribution group, you will need to discuss this with the Company before joining the Plan.

8 *Please note, if you previously paid regular contributions into a private pension arrangement and/or you are able to continue to contribute to a previous arrangement, continued regular contributions into such an arrangement may be protected as normal ongoing regular pension savings.

9 Although certain contributions are eligible for specific protection from the special annual allowance charge, such contributions still count towards your special annual allowance. As such, if your protected pension savings exceed your special annual allowance (usually 20,000) any additional contributions which are not eligible for specific protection from the special annual allowance charge will be subject to the charge. Some examples of when the special annual allowance charge may and may not apply to contributions to the Walt Disney Retirement Savings Plan are included below: Andrew Andrew has an annual relevant income of 100,000 in 2007/08, 105,000 in 2008/09 and 110,000 in 2009/10. Since Andrew s relevant income is less than 130,000 in each of the 3 tax years, Andrew is not affected by the special annual allowance charge, regardless of the level of his pension savings. Brian Brian has relevant income of 140,000 including Pensionable Salary of 122,000 in 2009/10. Brian s employer and employee regular monthly contributions to the Plan amount to 20% of Pensionable Salary ( 2, per month and 24,400 each year) and these were in place as at 9 December Brian receives an increase in Pensionable Salary to 125,000 such that his monthly contributions increase to 2, per month ( 25,000 each year). Brian (a) has had relevant income of 130,000 or more in one of the relevant tax years; AND (b) his ongoing regular pension savings already utilise his special annual allowance (prior to the additional contributions). However, Brian has not changed the rate at which he pays pension contributions on or after 9 December As such, no special annual allowance charge will apply to the increase in Brian s pension contributions. Cheryl Cheryl has relevant income of 135,000 including Pensionable Salary of 123,600. Prior to 9 December 2009, Cheryl paid 4% employee contributions to the Plan and received Company contributions of 11% of her Pensionable Salary each month. Cheryl celebrates her 55 th birthday on 10 January 2010 such that her Company funded contributions increase to 13% of her Pensionable Salary from 1 February Cheryl s contributions total 18,231 in 2009/10 and 21,012 in 2010/11. However, the increase in Cheryl s contributions is due to an automatic increase on crossing an age threshold. Cheryl has made no other changes to her pension contributions on or after 9 December As such, no special annual allowance charge will apply to the increase in Cheryl s pension contributions.

10 Diane Diane s annual relevant income is usually below 130,000. However, in September 2008, Diane received a taxable bonus payment of 10,000 which resulted in relevant income of 140,000 for tax year 2008/09. Diane s employer and employee regular monthly contributions to the Plan amount to 25,000 (and these were in place as at 9 December 2009). In January 2010 Diane decided to increase her contributions to the Plan such that she pays additional contributions of 5,000 in 2009/10 and 2010/11. Diane (a) has had relevant income of 130,000 or more in one of the relevant tax years; AND (b) has increased her pension contributions after 9 December 2009; AND (c) has normal ongoing regular pension savings which already utilise her special annual allowance (prior to the additional contributions). Therefore Diane must pay the special annual allowance charge on the additional 5,000 paid in tax years 2009/10 and 2010/11. Edward Edward has relevant income of 135,000 in 2009/10 including Pensionable Salary of 120,000. Edward joins the Walt Disney Retirement Savings Plan on 1 January 2010 (having ceased contributions to a previous employer s pension arrangement on 1 December 2009). Edward is age 40. Edward s normal ongoing regular pension savings eligible for specific protection from the special annual allowance charge are therefore the 3% minimum employee contributions he must pay to join the Plan and the 8% core Company contributions paid on his behalf. Total contributions to the Walt Disney Plan amount to 4,400 in 2009/10. Edward and his previous employer paid contributions totalling 25,000 in 2009/10. These are irrelevant for his normal ongoing regular pension savings but will utilise part of his special annual allowance in 2009/10. As such, Edward has no further scope within his special annual allowance to pay additional contributions above his minimum contributions and core Company contributions in 2009/10 and any additional contributions will be subject to the special annual allowance charge in 2009/10. In 2010/11, if there is no change in Edward s Pensionable Salary, his minimum contributions and the Company s core contributions will total 13,200 and Edward will be able to pay additional pension contributions up to 6,800 into the Walt Disney Retirement Savings Plan (or an alternative pension arrangement) without incurring a special annual allowance charge. Who is responsible for reporting and paying the special annual allowance charge? The responsibility for reporting and paying the special annual allowance charge rests solely with you. If you have paid/received contributions which are subject to the special annual allowance charge, you must include details of these contributions on your Self Assessment Tax Return for the relevant tax year and pay the special annual allowance charge directly to HMRC. Please note that this fact sheet is based on our current understanding (as at January 2010) of Government legislation and guidance. Further guidance may be issued in the future. This fact sheet is not intended to give financial or taxation advice. If you are unsure how the tax restrictions on pension contributions impact you, you should seek independent financial advice.