A Budget overshadowed by Coronavirus brought significant protection for individuals, small businesses and the NHS but (perhaps understandably) few changes for the pensions world.
Personal tax allowances frozen but National Insurance bands increase
As previously announced, the income tax thresholds will remain unchanged for the 2020/21 tax year. There is a cost to this for most taxpayers if their incomes are increasing while the tax thresholds remain unchanged.
National Insurance threshold will increase though, with the point at which an earner starts paying National Insurance increasing from £8,632 per annum to £9,500 per annum. This moves us closer to the Government’s stated aim of having a single threshold where someone starts paying income tax and National Insurance. The change to the National Insurance threshold will save a typical worker around £100 a year.
Pensions taxation easements for high earners
The Government has finally acted to ease the increase in taxation of pension contributions for people earning over £110,000 per annum. This has been a big concern for the NHS with doctors refusing overtime because of the tax implications. The lower threshold will be set at £200,000 per annum from April 2020 which will give high earners more headroom before their tax-free pension contribution allowance can be reduced. The minimum allowance will now however be reduced from £10,000 per annum to £4,000 per annum.
Simon Hubbard, a Senior Consultant and Actuary at Quantum Advisory, said:
“The Tapered Annual Allowance has caused unintended consequences for the Government since it was introduced, especially for the NHS. The Government were aware of the need to rectify this and Coronavirus has no doubt increased the urgency. The policy should now only impact particularly high earners, which will be welcomed by many.”
Pensions tax relief for low earners
The current tax system gives a tax relief top-up to some pension savers (even if they don’t earn enough to pay tax) but whether individuals receive this top-up depends on the type of pension scheme they pay into. The Government has not yet acted to rectify this but it has committed to reviewing the situation and calling for evidence.
The Lifetime Allowance for the 2020/21 tax year has been confirmed at £1,073,100.
About Quantum Advisory
Established in 2000, we are an independent, owner-managed actuarial and employee benefits consultancy that provides straight-talking, no-nonsense advice to employers and pension scheme trustees. We design, maintain and review pension schemes and related employee benefits so that they operate efficiently and effectively. We also help communicate these benefits in a straightforward way so that employees understand their real value.