Notional Earnings Cap 2009/10

The notional earnings cap for 2009-10 will be £123,600.

Before the introduction of the new pensions tax regime on 6 April 2006, an 'earnings cap' limited both contributions to, and benefits payable from, tax approved pension schemes. This cap disappeared under the new regime but remains a feature of many pre-existing pension scheme rules as a measure they use to limit increases in benefits payable.

To help the pensions industry with the transition into the new pensions tax regime, and in particular those schemes whose rules still restrict benefits by reference to the earnings cap, HM Revenue & Customs (HMRC) agreed to publish details of a notional earnings cap setting out what the earnings cap would have been had it still been in existence, each year until 2011.

Legislation

The Registered Pension Schemes (Modification of the Rules of Existing Schemes) Regulations 2006 (SI 2006/No 364) modify the rules of pension schemes that automatically became registered pension schemes on 6 April 2006 for a certain period, called the 'transitional period', which ends on the earlier of the first date after 5 April 2006 on which rule amendments in relation to such an existing scheme take effect that state that the modification regulations no longer apply to the scheme, or the end of the tax year 2010-11.

One of the features of the modification regulations is the preservation of the effect of the earnings cap on existing pension schemes to which the modification regulations apply during the transitional period. The regulations continue to apply the earnings cap during the transitional period as if the pre A-day legislation had remained in force and the Treasury had made the required orders to set the permitted maximum figure for a particular tax year.