Budget 2020: Threshold for pension tax relief to rise to £200,000
The income threshold that reduces the amount high earners can contribute to a pension is set to rise from £110,000 to £200,000.
Chancellor Rishi Sunak announced the change in today's Budget. It means that from next month, anyone with an income of under £200,000 will no longer be affected by the controversial tapered annual pension allowance. Currently those earning above a certain income have the amount they can save into a pension reduced on a tapering scale.
What is the annual pension allowance?
The annual pension allowance is the maximum amount of pension savings that you can build up in a year. The annual allowance of £40,000 is currently reduced or 'tapered' for those earning over £110,000 a year.
It means that for every £2 of 'adjusted income' that goes over £150,000, the annual allowance for that year reduces by £1. In simple terms, adjusted income is all income plus any pension contributions paid by an employer.
However, from Monday 6 April the income threshold will be increased to £200,000, meaning anyone who earns under this amount will not be affected by the tapered annual allowance.
The annual allowance will only begin to taper for those who have an income above £240,000 – the £200,000 allowance plus the £40,000 you can save into a pension.
The minimum annual allowance you can currently have is £10,000, but this will be reduced to £4,000 from next month – affecting those with an income over £300,000.
Who will benefit from the changes?
These changes have mainly been brought in to combat issues within the NHS which have seen some doctors cap their working hours given the loss in pension savings they could encounter and against a backdrop of providing support to NHS workers facing the coronavirus crisis.
The changes mean 98% of consultants and 96% of GPs will be taken out of the taper – something that the Government hopes will encourage doctors to take on additional shifts. However, these changes will also benefit other high earners such as bankers and lawyers.
Lifetime allowance for pensions also set to increase
The lifetime allowance – the maximum amount you can have in a pension over a lifetime – will also increase from £1,055,000 to £1,073,100 for 2020/21.
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