close
Share with your friends

Budget 2020: Tapered annual allowance for pensions – increases to thresholds

Tapered annual allowance for pensions – increases to th

Following concerns over public sector workers, changes will enable more tax-relieved pension savings to be made.

1000

Also on home.kpmg

The annual allowance is the maximum amount of UK tax-relieved pension savings permitted in a tax year. For those on the highest incomes, the annual allowance tapers down from £40,000, losing £1 in annual allowance for every £2 of ‘adjusted’ income above a threshold.

From 6 April 2020, there will be a £90,000 increase to each of two thresholds. Broadly, the changes should reduce the impact of the tapering.

Only those with ‘threshold’ income of £200,000 (previously £110,000) or more will need to calculate their tapered annual allowance. The annual allowance will only begin to taper down for individuals with an ‘adjusted’ income (which includes pension accrual) above £240,000 (previously £150,000).

However, for those with ‘adjusted’ income (including pension accrual) over £300,000, the annual allowance will taper down from the current abatement maximum of £10,000 to a minimum of £4,000 for those with ‘adjusted’ income exceeding £312,000.

This change will be welcomed by those who will be less impacted by tapering in the future, enabling them to make more UK tax-relieved pension contributions than before.

For those on the highest incomes, the further reduction of the minimum annual allowance from £10,000 to £4,000 reflects ongoing policy to reduce limits applicable to them when it comes to saving tax efficiently for retirement. Those affected making regular pensions savings may need to adjust these from April to avoid a tax charge.

Other changes for pensions include the expected increase in the ‘Lifetime Allowance’ in line with the Consumer Price Index (CPI) to £1,073,100. The ‘Lifetime Allowance’ is the maximum amount of UK tax-relieved pension savings someone can accrue over their lifetime before additional charges apply.

On pension scheme administration, the Government will publish a call for evidence in relation to differences in how tax relief and the resulting top-up is administered by schemes for those earning around or below the level of the personal allowance.

 

Contact

Alex Thornton

+44 (0)20 7694 4764

alex.thornton@kpmg.co.uk

Rhys Thomas

+44 (0)20 7311 4077

rhys.thomas@kpmg.co.uk

© 2020 KPMG LLP a UK limited liability partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved.

For more detail about the structure of the KPMG global organisation please visit https://home.kpmg/governance.

Connect with us

 

Want to do business with KPMG?

 

loading image Request for proposal