Chancellor Rishi Sunak said today that the tapered allowance threshold for pensions tax relief will increase to £200,000.
The pensions annual allowance is the maximum amount of tax-relieved pension savings that can be accrued in a year
Sunak increased the two tapered thresholds for pension tax relief by £90,000 today.
This means that from 2020-21 the so-called 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.
Making the announcement in the context of support for NHS workers facing the coronavirus crisis, Sunak said it would take about 98 per cent of consultants and 96 per cent of GPs out of the taper.
He also said the government would reduce the minimum level to which the annual allowance can taper to £4,000 from £10,000 which he said would only impact those with total income of about £300,000.
Proposals to offer greater pay in lieu of pensions for senior clinicians in the NHS pension scheme will not be taken forward, the budget said.
Svenja Keller, head of wealth planning at Killik & Co, said “The change to pension rules for doctors – with more clarity and support for their Annual Allowance conundrum – is great news and, at long last, should be a significant boost to frontline healthcare.
“That said, by trying to help NHS doctors the increase in allowance threshold is now applicable to everyone. Why not just abolish it? This would have brought far more simplicity and the threshold is now so high that it will take many out of the tapering regime regardless.”
Clare Moffat, head of business development at Royal London, said: “The chancellor’s decision to raise the threshold at which the tapered annual allowance kicks in is welcome but the pension tax system remains overly complex. In reality the chancellor has missed the ideal opportunity to massively simplify the system by removing the taper altogether.”
Pete Glancy, head of policy, pensions and investments at Scottish Widows, said: “There has been a missed opportunity in today’s Budget by not simplifying a tax system that’s crying out for less complexity. While increasing the limit at which tapering kicks in addresses some specific challenges being faced by some doctors, it does nothing for the majority of people saving for retirement who struggle to understand pension taxation.
“We’d like to see a single, simplified lifetime savings approach brought in that would recognise people’s need for tangible benefits throughout their lives – from getting on the property ladder to supporting them during times of financial hardship and securing their retirement.”