My right honourable friend the Financial Secretary to the Treasury (Stephen Timms) has made the following Written Ministerial Statement.

As announced in the Budget, the Government are acting to restrict pension tax relief for people on high incomes. Currently, pension tax relief benefits disproportionately those with the highest incomes. In 2008-09, people with income of over £150,000 represented 1.5 per cent of pension savers yet received a quarter of all tax relief on contributions. It has also become increasingly clear that those on the highest incomes are benefiting disproportionately from the new tax regime introduced in 2006. With personal tax changes announced at this Budget, pension tax relief would become even more generous for the highest earners. Pension tax relief needs to be recast to maintain fairness across the tax system. The Government are consulting with industry and pension savers on how best to achieve this.

To introduce the changes before April 2011 would risk administrative disruption for savers, pension schemes and HM Revenue and Customs. But the gap between the announcement today and implementation in April 2011 creates real risks that those affected, or believing they would be affected, would attempt to forestall the new rules by making large contributions now to get the benefit of higher rate tax relief that would not be available after April 2011

The Government assess that unless they take action around £2 billion of tax might be at risk over the two years before implementation. So the Government have introduced a set of anti-forestalling rules effective from today, available at www.hmrc.gov.uk, to have effect for the remainder of this tax year and next. These will be legislated in the Finance Bill 2009.

The vast majority of taxpayers will be unaffected by these rules, including all those whose income—this year and in the previous two years—is not over £150,000; and all those who, in the next two years, do not exceed their normal pattern of regular pension contributions or the normal way in which their pension benefits are accrued.

This legislation attempts to strike a balance: preventing individuals from making large increased contributions, or increases in their benefits, to pre-empt the reduced relief available from April 2011; ensuring that those who continue with their normal pattern of pension saving, whether in defined contribution or defined benefit pension schemes, receive higher rate tax relief until the new legislation takes effect from April 2011; and minimising the burdens on pension schemes.

The Government have decided that the fairest way of achieving this is to enable individuals who make regular patterns of contributions to continue to get tax relief at their marginal rate. Normal patterns of contributions are defined as agreements reached prior to 22 April to make contributions at least quarterly, or increases in pension benefits under scheme rules in place at 22 April—so including increased benefits due as a result of normal pay and progression. Where the annual value of total contributions or pension benefits accrued is less than £20,000, individuals will be able to increase the value of their pension savings or benefit accrual up to a new additional limit of £20,000. Contributions or benefits accrued outside normal patterns of contributions above this will attract a tax charge so that relief is restricted to the basic rate. This applies to total pension savings or benefits regardless of whether these are made by the individual, their employer or a third party. The £20,000 special annual allowance permits those individuals who do not have a readily identifiable pension saving pattern to continue to receive higher rate relief within the generous tax rules for pension saving. The Government recognise that those with less regular contribution patterns may be affected and would welcome views on whether there are ways of ensuring the contributions of this group are protected in the same way as those making more regular patterns, whilst continuing to meet the objectives above.

To protect against avoidance the legislation includes powers to enable HM Revenue and Customs to apply the tax charge to all the contributions made or benefits accrued in excess of £20,000 where avoidance schemes are found and, to prevent income restructuring, this applies to anyone who has income of £150,000 or more in the current or two preceding years.

The Government believe that this measure strikes the right balance between the interests of taxpayers, savers and pension schemes.