Budget 2020 – Good news re Pensions

There was some welcome news in the Budget for pension funding. Tax relief remains unaffected and many higher earners will no longer be subject to the pension tapered annual allowance.

But, those earning more than £300,000 could see their pension funding further limited.

Per the recent Budget:

1. A £90,000 increase to the tapered annual allowance thresholds could eliminate an unexpected tax charge for many high earners

• Those with income over £300,000 could see their tapered annual allowance reduced to £4,000

More Detail re these Pension Changes:

Tapered annual allowance thresholds raised by £90,000:

• The ‘adjusted income’ and ‘threshold income’ levels have been increased to £240,000 and £200,000 respectively from 6 April 2020. This is to help reduce the number of high earners affected by the tapered annual allowance, with doctors and GPs particularly in mind.

• For those still caught, taper will take effect by reducing the annual allowance by £1 for every £2 of adjusted income over £240,000.

• However, the minimum level the annual allowance can be tapered down to, is reducing from £10,000 to £4,000. So those with total table income, plus all pension contributions, which total more than £312,000, will only be entitled to a £4,000 annual allowance from April 2020.

• There are no changes to the standard annual allowance, which remains at £40,000 (with carry forward), or the money purchase annual allowance, which stays at £4,000 (with no carry forward).

Lifetime allowance increased to £1,073,100:

As expected, the lifetime allowance for 2020/21 goes up by the cost of living increase, as measured by CPI.

Boosting pension tax relief for lower earners:

To address a discrepancy in the level of tax relief to which those earning under the personal allowance are entitled, the Government will be launching a ‘call for evidence’.

The Government is reviewing options to ensure that low earners who are members of pension schemes which give tax relief under what is called the ‘net pay arrangement’ (i.e. their contribution is deducted from taxable pay before the tax is calculated via payroll) will also get tax relief on their pension contributions – this is not currently the case, so such low earners are currently losing out.