As the Finance Bill arrives today at the Report stage of its passage through Parliament, the first Government amendment to the pensions 'anti-forestalling' provisions has been tabled.

Following several meetings with industry bodies and sustained lobbying, Financial Secretary to the Treasury Stephen Timms has responded at this 11th hour to unprecedented unity in the industry about the need to make the special annual allowance rules less unfair to the self-employed.

A new paragraph 16A is to be inserted into Schedule 35, providing for an increased special annual allowance of up to £30,000 where "relevant contributions"* paid in 2006/07, 2007/08 and 2008/09 to a money purchase arrangement (other than a cash balance scheme), less frequently than on a quarterly basis, averaged over £20,000 per year.

*"Relevant contributions" means contributions which are -
1. relievable pension contributions by or on behalf of the individual, or
2. contributions paid by an employer of the individual in respect of the individual.

The amendment will enable individuals earning over £150,000 who usually make contributions annually, often of varying (but substantial) amounts depending on funds available towards the end of the year, to protect and retain full tax relief on the lesser of the historic 3-year average and £30,000. Without this amendment, their tax relief would have been restricted to the first £20,000 of contributions for 2009/10 and 2010/11. The Government is understood to believe it will halve the number of people who would otherwise not receive full tax relief. Self-employed people, whose available profits often cannot be determined until towards the year end, and employees who fund their pension from end-of-year bonus payments are two categories which stand to benefit from the amendment.

A further minor amendment permits the Treasury to lay an Order to extend the scope of the Sch 35 provisions to individuals who have in the past been members of "currently-relieved non-UK pension schemes" (see FA 2004 Sch 34 ), or of another overseas pension scheme.

The industry has also been pressing for other changes to Sch 35; some concerning the scheme arrangements caught, others the timing of contributions (see earlier Aries article). It remains to be seen whether the Treasury will accept any of the arguments. Some changes could be achieved by regulations.

Tomorrow the Bill receives its Third Reading and then passes to the House of Lords. Royal Assent is expected around 21 July.

Update 10 July

The Government amendments were passed at Report. Although various Opposition amendments to Sch 35 were withdrawn, Mr Timms acknowledged some merit in one of these, telling the House

"I accept that we can be more flexible so that if somebody changes pension provider and carries forward exactly the same pension arrangements, they can retain their protected pension contributions. There is a risk, though, of inadvertently opening up significant avoidance. I would therefore like to take the matter forward through regulations, after consulting the industry on draft regulations."

"One matter not covered by the amendments has been raised with me, which is that the rules on the commencement dates for the anti-forestalling regime are too stringent with regard to the treatment of those who set up new pension arrangements on or just before Budget day. There is scope there, too, to be helpful, and we will discuss the matter with providers and make any change necessary through regulations."