Higher rate tax relief is given by increasing the basic rate and higher rate band by the amount of gross contribution paid into a personal pension. The affect of this is that the investor will get higher rate relief by paying basic rate tax on income that they would have otherwise paid higher rate tax on.

Salary sacrifice allows an employee to give up a level of salary and replace it with an employer’s pension contribution creating a larger pension contribution for the employee than they would have paid themselves for the same or lower net cost. The process can also be applied to bonus sacrifice with the same effects.

From the beginning of the 2010/11 tax year individuals with ‘net adjusted income’ in excess of £100,000 had their personal allowance reduced. This reduction will be at a rate of £1 for every £2 of income over £100,000. Based on the personal allowance, this means that any person with income over £114,950 will lose their full personal allowance applying for the 2011/12 tax year.

Employer contributions to registered pension schemes play an important part in funding retirement provision for directors and key employees. On an ongoing basis they will become more important when auto-enrolment is introduced into the private pension arena. This article covers the impact that employer contributions will have in relation to the pension changes introduced from 6 April 2011.