The Chancellor, Rishi Sunak, delivered his first Budget on 11 March. Understandably, the main focus was on assistance to companies and to individuals in the light of the Covid-19 pandemic. However, there were a few measures related to pensions that featured in the Budget.
Annual Allowance taper tantrum
For individuals whose earned income, including employee and employer pension contributions, exceeds £150,000 a year, the Annual Allowance (“AA”) is reduced below £40,000. For each £2 a year of earnings above the £150,000 threshold, the AA is reduced by £1, down to a minimum AA of £10,000 for those earning more than £210,000 a year. However, the restriction does not apply to individuals whose earnings – excluding pension contributions – do not exceed £110,000 a year. Many NHS consultants are affected by this taper, which has led to consultants refusing overtime so that they don’t incur an unwelcome tax charge.
Motivated, perhaps, by the desire to retain as many NHS staff as possible to help in the fight against Covid-19, the Chancellor has raised both earnings thresholds by £90,000 a year, so that, going forward, the taper will not affect anyone whose earnings excluding pension contributions do not exceed £200,000 a year. However, the minimum tapered AA will be reduced from £10,000 to £4,000 a year, so those with income of more than £300,000 a year (including employee and employer pension contributions) will see their already small AA reduced further.
Lifetime Allowance
With effect from 6 April 2020 the Lifetime Allowance will rise, in line with Consumer Price Inflation (“CPI”) from £1,055,000 to £1,073,100.
Consultation on the future of RPI
As promised by the previous Chancellor, the Government and the UK Statistics Authority have launched a consultation on the proposal to align the Retail Prices Index (“RPI”) with CPIH. The consultation seeks views on when, between February 2025 and 2030, the alignment should take place, as well as on technical aspects of the implementation.
Net pay/Relief at source
The Government has also announced a call for evidence on pension tax administration, with a view to resolving the anomaly that results in savers who earn less than the Personal Allowance receiving tax relief on contributions to a pension arrangement that operates Relief at Source but not on contributions to one that operates on a Net Pay basis.