RPSM02100120 - Technical pages: Registering a pension scheme with HMRC: pension schemes which exist at 5 April 2006: Modifying the rules of existing pension schemes: Permitted maximum figure

Modifying the rules of existing pension schemes: Permitted maximum figure

Before 6 April 2006, section 590C of the Income and Corporation Taxes Act 1988 (section 590C) effectively applied the permitted maximum (or “earnings cap”) to pension schemes, such as tax approved retirement benefits schemes and personal pension schemes. The permitted maximum was introduced for the tax year 1988-89 and was initially set at £60,000. In subsequent tax years section 590C required the permitted maximum to be set by a Treasury Order and for the tax year 2005-06 the figure is £105,600.

One of the features of the Registered Pension Schemes (Modification of the Rules of Existing Schemes) Regulations 2006 [SI 2006/364] is the preservation of the effect of the permitted maximum on existing pension schemes that automatically become registeredpension schemes on 6 April 2006 to which the regulations apply during the transitional period, despite section 590C no longer applying from 6 April 2006. The regulations continue to apply the permitted maximum during the transitional period as if section 590C had remained in force and the Treasury had made the required orders to set the permitted maximum figure for a particular tax year.

Had section 590C remained in force, a Treasury order would have stated the permitted maximum figure. Had that order been made, the permitted maximum figure for the following tax years would have been: