The end of this tax year marks a significant period of pension change as a result of the Finance Act 2011. The changes to pension legislation have been as significant as that for pension simplification in 2006, yet there has been little time to understand the full implications of those changes.

Here are some of the areas where clever pension planning between now and 5 April 2012 can provide tax advantageous solutions to help your clients build a decent retirement income:

• Clients subject to 50% income tax – pay personal contributions within 100% of relevant earnings threshold to reduce taxable income below the 50% threshold.
• Clients with adjusted relevant income over £114,950 – pay personal contributions to registered schemes to reduce taxable income below £100,000, enabling full personal allowance to be regained and providing marginal rate tax relief of 60% on contributions paid between £114,950 and £100,000.
• Carry forward of unused annual allowance from 2008/09 – will be lost if not used. Must ensure full £50,000 annual allowance for 2011/12 tax year is used first, ensuring pension input period for this contribution ends no later than 5 April 2012.
• Employer contributions to reduce taxable profits in trading periods ending before 5 April 2012 – can be used for carry forward of unused annual allowances, for current annual allowance and that for 2012/13 tax year.
• Registering for fixed protection – must be completed no later than 5 April 2012. 2011/12 is last tax year in which money purchase contributions can be paid if fixed protection is to apply. Maximise this year’s annual allowance plus carry forward of unused relief for pension input periods ending in 2008/09 to 2010/11 tax years. Clever use of pension input period planning will allow funding of 2012/13 annual allowance this tax year maximising input.
• Recycling of unused income withdrawals as allowable contributions – minimum £3,600 if client is aged under 75, but could be higher if client has relevant earnings.
• Gifting income using ‘normal expenditure’ from drawdown funds – reduces potential 55% tax charge on death from drawdown fund, whilst ensuring future growth is with the beneficiary and not part of taxable drawdown fund. Funding third party contributions to pension arrangements of children or grandchildren an option.
• Early crystallisation – for some clients aged over 55 crystallising benefits this tax year while lifetime allowance is £1.8 million will create higher retained lifetime allowance for future use.

Targeting those clients who will benefit most from the tax planning opportunities that pension funding can provide over the coming weeks will highlight the need for advice and can be used with professional connections to perhaps establish new client relationships.