And is it just a ‘sticking plaster solution’? Customer experience is expected to stay broadly the same as the process is not expected to change significantly. More details can be found in the policy costings document published alongside Budget 2020. From April 2020, the minimum level to which the annual allowance can taper down will reduce from £10,000 to £4,000. This means that from 2020/2021, the threshold income will be £200,000; those employees that earn below this level will not be affected by the tapered annual allowance. The measure supports the government’s objective to make sure pensions tax relief is fair, affordable and sustainable. To view this licence, visit nationalarchives.gov.uk/doc/open-government-licence/version/3 or write to the Information Policy Team, The National Archives, Kew, London TW9 4DU, or email: psi@nationalarchives.gsi.gov.uk. This measure increases the income limits used in calculating a tapered annual allowance and decreases the minimum tapered annual allowance. From 6 April 2020, there will be a £90,000 increase to each of two thresholds. your threshold income is over £200,000 (this was previously £110,000), your adjusted income is over £240,000 (this was previously £150,000). Information given on regulated and unregulated products does not constitute any recommendations or advice. Example 1 Those in grey retain a £10k annual allowance. Chancellor Rishi Sunak has announced that “to support the delivery of public services, particularly in the NHS”, the two tapered annual allowance thresholds will each be raised by £90,000. From the 2020/21 tax year the tapered annual allowance income thresholds will be: The government is increasing the point at which the £40,000 annual pension allowance starts to reduce for higher earners by £90,000. There was even talk of wholesale review of pension tax rules. From 6 April 2020, you will have a reduced (‘tapered’) annual allowance if: You will not be subject to the tapered annual allowance if your threshold income for that year is £200,000 or less, no matter what your adjusted income is. Those earning more than £300,000 will see a reduction in their annual allowance and will pay more tax as a consequence. Broadly, the changes should reduce the impact of the tapering. The Upper Earnings Limit and Auto-enrolment Earnings Threshold remain static at £50,000 pa and £10,000 pa respectively. The lifetime allowance, namely the maximum amount an employee can accrue in a registered pension scheme in a tax-efficient manner over their lifetime, will increase in line with the consumer price index (CPI) for 2020/21, rising to £1,073,100. 6776955. HM Treasury’s move to increase the two income thresholds by £90,000 went beyond mere tinkering. The £35,000 above the annual allowance is added to earnings and taxed as income, leading to an annual allowance tax charge of £15,750 (£2,250 more than the previous tax year). The standard annual allowance limit has been set at £40,000 since 6 April 2014. Other pensions announcements for 2020-21: Alongside the changes to the tapering treatment, other key highlights from the most recent budget that impact pensions included: Enroller is Benefex's very own auto-enrolment software. Benefex Limited Registered in England & Wales (No: 04768546). The overwhelming majority of NHS employees will no longer face the uncertainty and distress of the application of the annual allowance taper based on additional NHS earnings. Benefex and Corporate Benefits are trading names of Benefex Financial Solutions Limited (FCA reference number: 468665). However those only affects those with adjusted income in excess of £312,000. This may be something the Chancellor returns to in a future budget, ideally as part of a wider consultation on how to reform pension tax reliefs.”. 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). Follow KPMG’s coverage of the first Budget since Brexit. Budget 2020: Chancellor Rishi Sunak announced today (11 March 2020) that that the tapered annual allowance threshold for pensions tax relief will be increased by £90,000. The individual’s annual allowance would be reduced by half of this – so by £30,000 – leaving them with a tapered annual allowance of £10,000, which is the standard annual allowance of £40,000 less the £30,000 reduction under the tapering rules. In December last year, the health secretary Matt Hancock agreed to allow NHS England to make payments to senior clinicians to restore the value of their pension benefits package, if they have elected to use the ‘scheme pays’ facility to settle an annual allowance tax charge in the 2019/20 tax year. This means that from 2020-21 the “threshold income” will be £200,000, so individuals with income below this level will not be affected by the tapered annual allowance, and the annual allowance will only begin to taper down for individuals who also have an “adjusted income” above £240,000. All the information you need on our information security and business continuity standards, Join us on our mission to make work a great place for everybody. Budget 2020: Tapered pension allowance and Jisa allowances to increase. However, the quid pro quo was the taper fell below £10,000 for those earning above £300,000, down to a minimum of £4,000. 05573633. Registered in England and Wales no. International Adviser covers the global intermediary market that uses cross-border insurance, investments, banking and pension products on behalf of their high net worth clients. The tapered annual allowance is triggered when both the threshold income and the adjusted income exceeds their designated limits. These rules apply to individuals with ‘adjusted income’ for a tax year above £150,000 subject to their threshold income exceeding £110,000. This amount is added to your taxable income net of any pension contributions paid by you personally in the tax year, and you will pay Income Tax on it at the tax rate that applies to you. Your available annual allowance is your reduced (or tapered) annual allowance plus any unused allowance from the previous three tax years. Restrictions to the annual allowance The tapered annual allowance for high earners. We want to ensure that you are kept up to date with any changes and as such would ask that you take a moment to review the changes. The first was dedicated to coping with the creeping onset of coronavirus, and had obviously been written and re-written right up to the moment he stood up at the despatch box. This measure is not expected to impact civil society organisations. Her annual allowance will be tapered to £32,500. Threshold income is all of your earnings (not just your salary) and includes chargeable gains on investment bonds – the whole gain, not just the ‘top slice’ – which are subject to UK Income Tax. A behavioural adjustment is made for some affected individuals choosing to make higher pension contributions. We want to make sure you're kept up to date. The difference between ‘threshold income’ and ‘adjusted income’ is that the former excludes pension contributions but the latter includes all pension contributions. The new tapered annual allowances are shown in the table below. The ‘Lifetime Allowance’ is the maximum amount of UK tax-relieved pension savings someone can accrue over their lifetime before additional charges apply. Then Sunak seemed to shift gears and returned to the ‘normal’ budget delivery. If you continue browsing, we assume that you consent to our use of cookies. This measure will cost the Treasury £180m in the 2020/21 tax year, rising to £670m by 2024/25. We would rather have seen the Treasury scrap the taper – as well as the unfair money purchase annual allowance (MPAA) – as part of a wider simplification agenda designed to make the system of tax rules governing people’s retirement savings easier to navigate. To help us improve GOV.UK, we’d like to know more about your visit today. Budget 2020: Chancellor Rishi Sunak announced today (11 March 2020) that that the tapered annual allowance threshold for pensions tax relief will be increased by £90,000. This site is for UK investors only. He unveiled a £30bn ($34.6bn, €32.1bn) package to help the UK ride out the coronavirus storm, including funds to support the NHS, extending statutory sick pay, and introducing support for smaller businesses with sick or self-isolating staff. Tapered annual pension allowance rises to £200,000 The decision to raise the tapered annual allowance thresholds in last week's Spring Budget delivered a timely boost to high earners. Although there are no limits to how much an individual can save or accrue in a registered pension scheme, there is an annual limit on the amount of an individual’s tax-relieved annual pension savings or accrual (including employer contributions). “This importantly provides certainty for them. 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. While the general principles of the Tapered Annual Allowance remain the same, the threshold levels will both increase by £90,000. But as 11 March approached events overtook these rumours and instead the focus was on the tapered annual allowance. If you have concerns about your pension annual allowances or would like to speak to someone about your pensions or other investments, we’re here to help you. You can book a telephone appointment or just give us a call on 020 3811 3625. Broadly, the changes should reduce the impact of the tapering. Those affected making regular pensions savings may need to adjust these from April to avoid a tax charge. Note – the above figures detailed do not account for any carry forward relief that may still be available from the preceding 3 tax years. These changes come into effect as of today. Likewise, those earning below £300,000 adjusted income are likely to see a reduction in the tax they pay because they are either no longer impacted by the taper and are entitled to the full £40,000 annual allowance, or they are still impacted by the taper, but their tapered annual allowance has increased. No. ISSN 2397-284X. You will not receive KPMG subscription messages until you agree to the new policy. {{vm.newUser4}}. The minimum tapered annual allowance is decreased from £10,000 to £4,000. 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 annual allowance will only begin to taper down for individuals with an ‘adjusted’ income (which includes pension accrual) above … Their annual allowance should be reduced by £45,000, which is the standard annual allowance of £40,000 less the £45,000 reduction under the tapering rules. Join the Benefex community and we'll keep you posted about the latest updates in the world of HR and benefits. From 6 April 2020, there will be a £90,000 increase to each of two thresholds. So it’s perhaps not surprising that the single pensions change was designed to stop senior NHS professionals turning down extra work or retiring early to avoid a pensions tax penalty. Following the announcement that the tapered annual allowance for pensions would rise in the 2020/21 tax year, our pension technical specialist Nigel Hatt explains the changes and answers a selection of your questions. From 6 April 2020 the minimum that this can reduce to is a tapered annual allowance of £4,000.