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