Author: Jenny Pearce / March 17, 2020
Following on from last weeks budget the following changes were made to Pension Rules:
Tapered Annual Allowance
- As a result of the unintended consequences that the Tapered Annual Allowance has had for staffing levels within the NHS, changes were strongly anticipated. From 6 April 2020, the two income thresholds – Adjusted Income and Threshold Income – will both rise by £90,000 to £240,000 and £200,000, respectively. This will affect all those with income above the thresholds, not just those within the NHS.
- In addition, the lowest level that the Tapered Annual Allowance can drop to will reduce by £6,000 to £4,000 from 6 April 2020. Those with adjusted income of at least £312,000, therefore, will be subject to a taper of £4,000.
- The Lifetime Allowance will increase in line with Consumer Price Index (CPI) inflation to £1,073,100 from 2020/2021.
- The increases to the Tapered Annual Allowance thresholds represents the first increase to the amount that high earners can contribute to their pensions in a decade. The change will not affect tapering of the annual allowance in previous tax years, which is relevant for Carry Forward.
- Another small increase to the Lifetime Allowance after many years of cuts is good news. The increase of £18,100 will reduce the potential tax bill by a further £9,955. Members of Defined Contribution schemes should consider the potential loss of Lifetime Allowance indexation when funds are moved to drawdown and then become subject to the second Lifetime Allowance test.
If you have any queries regarding this please don’t hesitate to get in touch.