Important tax changes: January 2011 update

Background

In 2009 the previous Government proposed changes to the way pension saving would receive tax relief. Transitional arrangements were introduced from April 2009 with the ‘proper’ changes due to take affect from April 2011.

When the new Government came into power it reviewed these proposals and announced that it would make revisions to the April 2011 changes, but that the transitional arrangements would stay in place. At the end of 2010 final details of the April 2011 changes were announced.

What's changed?

From April 2011 there will be changes to:

• Your annual allowance: the maximum tax-free build up of pension savings you can make each year;
• Your lifetime allowance: the overall value of pension savings that you can build up over your entire working Lifetime before a tax penalty applies.

Am I impacted?

Whether the April 2011 changes affect you will depend on a range of factors such as how much you earn, how long you have been a member of the Telefónica UK Pension Plan ("the Plan"), the pay rises you receive and the extent to which you pay additional voluntary contributions or make extra payments into personal pensions.

How can I find out more?

We have worked with Mercer, a firm of professional pension advisers, to review the changes and provide guidance on what they are and broadly who might be impacted. Mercer has prepared the attached guidance note to help you understand the changes and assess if you need to take any action.

The previous guidance note prepared is also still available. This gives you information about the transitional arrangements that are still in place up to 5 April 2011.

What should I do if I think I'm likely to be impacted?

We would highly recommend discussing this with your Financial Adviser who should be able to help you plan an appropriate strategy to minimise your tax liability. If you do not have a Financial Adviser then you can find one through www.unbiased.co.uk.

You should contact a member of the pensions management team – Jo Udall (joanna.udall@o2.com) or James Kirkland (james.kirkland@o2.com) if you would like to –

• clarify any of the points raised in the guidance notes;
• obtain details about your current level of pension contributions/accural; or
• discuss making a change.