And now, it's the Pension. Help needed.

Help is needed to unravel the mysteries of financial speak.

A missive has been steadily making its way around the houses. It’s clearly the start of something that will gain momentum, but early visibility to the community might help understand exactly what this will mean before it’s too late to make a meaningful decision (like getting a head start on the job market).

The crux appears to be: ‘’In broad terms the Government has announced that from Apr 11, there will be a reduced Annual Allowance (AA) for pension contributions of £50,000 per annum (previously £255,000) and from Apr 2012 the Lifetime Allowance (LTA) for tax-free savings towards pensions will reduce from £1.8 million to £1.5 million. Of note, Annual Allowance will be calculated by multiplying the increase in pension value over a year by a new factor of 16, rather than the previous factor of 10. However, to provide some protection from one-off spikes in pension value accrual caused by promotion, individuals will be able to carry forward 3 years of unused AA.’’

Sadly, this doesn’t mean a lot to me. Luckily there is a brief vinegar stroke comment: ‘’Officers promoted to (OF4) and above may face in-year tax charges which, in some cases, could significantly exceed the pay increase which they receive from the promotion, and may be more than the individual could reasonably be able to fund from their taxed income.’’

It looks like OF4 and above will have to start making pension contributions if they are to receive the pension they were expecting. Quick maths: £1,000/ month. Then again, I may be calculating from my hoop. Can anyone shed light?

There's more here, but I don't understand this either: Restriction of pensions tax relief - HM Treasury
This should not worry most of us as the overall effect will be that from April 2011, the AA will be set at £50,000, with a reduction in the LTA to £1.5m from April 2012. The Government believes that these allowances represent an appropriate level of taxprivileged saving for retirement. These limits will apply to savings in registered pension schemes, where investment growth on pension savings remains untaxed, and individuals can also benefit from a tax-free lump sum of up to 25 per cent of the total pension right. This means that individuals can benefit from up to £25,000 tax relief a year, and can build up pension wealth sufficient to generate a tax-free lump sum of around £375,000 – with an annual pension of around £62,000. Bottom line - if your pension is likely to be more than £62,000 - you are going to suffer (but not too much!!)

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