Investors that have been saving for a pension either through their company scheme or through a Sipp (self invested personal pension) need to read this.

As it stands, if you earn £130,000 or less, then you currently qualify for complete tax relief on any amount you put into your pension up to £255,000 each year.

However, on 5 April 2011, this level will change and you will only get tax relief on contributions up to £50,000.

So, if you would rather have all of your pensions contributions for this year tax free up to £255,000 you need to act very promptly indeed.

When the current rules came in on 6 April 2006 – known in the industry as “A-Day” – pension schemes were given the flexibility to select the 12-month period for their annual allowance. This was called the pensions income period.

The idea was that pension schemes could align their period to any company’s financial year.

However, now that this tax break is being closed off, investors will need to retrospectively move their ‘periods’ in order to avoid a tax sting of up to 47 per cent on their pensions contributions. Ouch.

What should you do?
If you are not planning on contributing more than £50,000 into your pension, then you don’t have to worry.

However, if you have received a decent beginning-of-the-year bonus, or have come into a lump sum, it may be possible to increase the amount of tax-free contributions this year before the new limit comes into force.

In the first instance, you will need to contact your pension scheme administrator and verify when your input period has traditionally closed.

Andy Tully, pensions policy manager at Standard Life, explains that you can only have one ending in each tax year.

He explains, ‘So, if the current period is due to end on 1 June 2011, the £50,000 limit would apply. In order to avoid that, I would need to go back and retrospectively change all of the previous periods.’

Pensions providers say they will process as many requests as they possibly can up until the deadline, but you will need to submit your request in writing.

Claire Brooks, pensions technical manager at Suffolk Life, explains that the changes are likely to lead to a marked increase in workloads for both financial advisers and pensions providers.

She says, ‘Extra information is now required (dates and amount of contributions, with special reference to the key date of 14 October) to check when pension input periods end for each of a client’s schemes.

‘Calculations must be made to ensure they are not breaching the new annual allowance. This will affect clients with pension input periods that end in the next tax year, and there could easily be more than might be expected.’

Brooks says that many providers don’t opt for a set input period in their schemes, and without one, the rules dictate that the first period must end on the anniversary of the first contribution.

She continues, ‘So if the first contribution was made on the 6 April 2006 then the ongoing period end date will be the 6 April (the first day of each tax year), rather than 5th April, which would have been the obvious date.

‘This could have serious tax implications going into the new regime, however, there are rules allowing schemes to retrospectively amend their periods to coincide with the tax year-end.

‘This too could have tax implications for some who have made large contributions – they may incur tax charges because a different annual allowance would historically apply.’