Introduction »

Family pension plans

An individual has an annual pension contributions limit for tax relief purposes. The limit applies to contributions whether made by the individual or by another person such as an employer. From 2011/12 this allowance was reduced from £255,000 to £50,000 and will reduce to £40,000 from 2014/15 onwards.

Some employers not only offer pension plans to their employees but also make contributions to a registered pension scheme for family members as part of their employees’ flexible remuneration package. However, in response to the lower annual allowance limits placed on the individual employee from 2011/12 these types of arrangement have been used to side step the new rules for employees who would have faced an income tax charge on contributions in excess of the £50,000 limit.

Currently whether payments are made to the employee’s own scheme or that of a family member, as long as the contributions are made to a registered pension scheme and are within the annual limit for each individual then no tax charge arises. The effect is that the employee is exempt from income tax and National Insurance (NI) on the employer’s contributions into a family member’s pension scheme. In other words, these contributions do not count towards the £50,000 limit for the employee, thus avoiding the income tax that would otherwise be due on the employee for contributions in excess of the limit.

Changes ahead

With effect from 6 April 2013 employees will no longer enjoy exemption from income tax and NI on such contributions into a family member’s pension scheme. Employers will have to report such payments in line with other employee benefits and the payment will be subject to employer NI.

If you would like to discuss this further or require any advice regarding pension planning please contact us for further information.

Introduction »