THE publication of the Finance Bill has spelled some good news for self employed people, who until now were restricted to funding their pensions each year up to a maximum equivalent of 15 per cent of their net relevant earnings.

Under Section 13 of the Bill, this limit has been raised to 20 per cent for self employed earners aged 55 and over.

Like many financial advisers, Mr Owen Morton of Moneywise Financial Planning welcomes the extended funding limit (it has been an issue that advisers and accountants have been lobbying the government about for many years) and says it will have a considerable impact on final pension fund values.

Using a Moneywise computer model, Mr Morton shows how significant the funding increase could be to a man aged 55.

"Let us assume that this client prudently took up the 15 per cent level of contribution from age 35," he explains.

"If we assume a level of pensionable earnings 20 years ago of £20,000, on the basis of 6 per cent growth a year, his current earnings would now be £60,000. Assuming a steady 8.25 per cent growth, his current pension fund is now worth £230,000. This is our starting point for the same man, now 55 to increase his pension contributions to 20 per cent of his salary.

"The computerised pension model we use at Moneywise illustrates and quantifies the build up of funds over the next 10 years for this man. Assuming a zero commission product with a recurring fee of 5 per cent per annum, and contributions of 20 per cent of his salary, this man's fund should build up to a total of £737,743.

"From this he should realise an indexed pension of £61,454 a year. Had he been restricted to the 15 per cent funding limit, his final fund would have been worth £649,853 and his indexed pension £54,133 per annum, a differential of 15 per cent."

Mr Morton also makes the point that a person who only starts contributions late will see a greater enhancement of his total pension fund. "Obviously a 55 year old who commences funding his pension now at 20 per cent of net earnings rather than at 15 per cent will enjoy an accumulated fund and benefits that will be 33 per cent greater under this model. Enhancement depends on duration and level of earlier contributions particular to each case."