Voluntary Redundancy and AVCs

BlueTewk

I understand that there is a limit on the amount paid into a money purchase plan each tax year. This has recently been reduced - or will be reduced in the next tax year?

I have been paying 15% of my salary into a money purchase scheme each month for 15 years. I have been told that I can increase this to a maximum of 80%, providing the total does not exceed £50k in one tax year. (Was this £250k until gorgeous George took over?)

I am in my 50s. No mortgage. We have enough for the essentials (food, insurance, clothes, fuel, broadband, telephone, depreciation). A new job will be tricky and will involve a considerable pay cut (40-50%?). My wife will retire in less than two years.

I would like to pay as much as possible of my redundancy pay into AVCs. What are the limits? What are the limits in 2010-2011 tax year? Have they changed? Or will this change be in 2011-2012 tax year?

hugheskevi

I understand that there is a limit on the amount paid into a money purchase plan each tax year. This has recently been reduced - or will be reduced in the next tax year?

Complicated - a bit of both. The restriction applies to contributions in 2011/12, but the way that contributions are made (measured during what is called a pension input period for annual allowance purposes) mean that contributions made now could in fact count as a contribution in 2011/12.

This is because pension input periods last for one year and do not have to be aligned to the tax year. So if you had a pension input period that ran from 1st Nov - 31st Oct and you put money into the pension now, it would count as a contribution in 2011/12 for annual allowance purposes, as that is when the pension input period would close.

I have been paying 15% of my salary into a money purchase scheme each month for 15 years. I have been told that I can increase this to a maximum of 80%, providing the total does not exceed £50k in one tax year. (Was this £250k until gorgeous George took over?)

Under the old rules, you can pay in up to the greater of 100% of earnings or £3,600 p/a, on which you receive tax relief up to £255,000.

You can still pay in up to the greater of 100% of earnings or £3,600, but the cap on money on which you receive tax relief is reduced to £50,000 from April 2011.

The rules may be different if you earn in excess of £130,000 (which includes any redundancy income over the tax-free £30,000) due to anti-forestalling rules introducted for 2010/11 by the previous Government. Note that this link contains out-of-date information, so only the part about anti-forestalling is relevant, not what is said about post April 2011 which has now been superceded.

I would like to pay as much as possible of my redundancy pay into AVCs. What are the limits? What are the limits in 2010-2011 tax year? Have they changed? Or will this change be in 2011-2012 tax year?

The HM Treasury guidance is here. This is an extremely complicated area.

If you earn less than £130,000 and intend to contribute less than £50,000 in total (including contributions already made since October 14th and subject to total contributions being lower than your earnings in the tax year) then you should be fine.

If you either earn more than £130,000 or intend to contribute more than £50,000 you should start some detailed research - you might well be able to contribute more, but you need to understand how/if the proposed 3 years look back will apply to you, and what your pension input period is.

Sorry that is all rather complicated, but there isn't really a simple answer.