Relevant mean is too mean

Government amendments to Finance Bill 2009 tabled on 3rd July 2009 have added some protection for people paying annual and recurring single contributions under the Treasury's anti-forestalling proposals.

The proposed position was that high income individuals, whose contribution history was of contributions paid less frequently than quarterly, were only protected up to the standard "protected input" amount of £20,000.

However, under the proposed amendments, the limit is increased to the lower of the average of three years contributions (tax years 2006/07, 2007/08 and 2008/09) and £30,000. For example, a high income individual who paid in £35,000, £40,000 and £25,000 (average £33,333), in the three relevant tax years is protected up to £30,000 for 2009/10 and 2010/11. A high income individual who paid in £35,000, £25,000 and £20,000 (average £26,667) over the period 2006/07 to 2008/09 is protected up to £26,667 for 2009/10 and 2010/11.

John Lawson, Head of Pensions Policy at Standard Life said, "By raising the limit to £30,000 for annual contributions, the government has made only the meagrest of concessions to the self-employed and small business owners most affected by these proposals. Those in company schemes who pay pension contributions monthly are treated more favourably because they can protect their full historic contribution level without limit. There is no justification for penalising entrepreneurs in this way."

The proposed amendments also fail to cater for those moving employer (where protection is only continued if the mover joins a group scheme with 20 people building up benefits at the same rate) or those switching their pension from Scheme/Provider A to Scheme/Provider B.

John Lawson continued, "People should have the freedom to choose the best pension in the market for them or move to a small employer with less than 20 staff, without losing protection. Penalising people in this way goes directly against the principles of free market competition in the provision of services and labour. Keeping these restrictions in place amounts to a stealth tax on free choice."