Friday, 6 February 2009

Public Service pension levy

I've been following the reporting of the Public Service Pension Levy announced this week.

I can't see any clear explanation as to whether this new levy will be included in your usual limits for tax relief on pension contributions (e.g. 20% of income while in your 30s, 25% of income while in your 40s etc.) As the levy qualifies for tax relief, it seems reasonable to assume that it will be included as a pension contribution for the calculation of these limits.

If it is, a rather bizarre situation may arise where an individual has been voluntarily making additional pension contributions - Additional Voluntary Contributions (AVCs) and/or Notional Service Purchase (NSP - "buying back years"). The additional levy could put them over the limit for tax relief for their age. So the logical thing to do would be to reduce their voluntary pension contributions.

Given that the Government has spent an awful lot of time, effort & money trying to encourage people to contribute to their own pension, it seems counter-productive to then introduce a levy which may have the effect of encouraging people to reduce their contributions.

Brian - make sure the levy doesn't count towards the age-related limits for tax relief!

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