11 Mar 2020

Following concerns that pensions tax charges are forcing experienced staff out of the NHS Pension Scheme and impacting services for patients, the Chancellor has today announced measures to increase the point at which the tapering of the annual allowance starts.  

In simple terms, the current tapered allowance rules provide that a saver's annual allowance (which is currently £40,000) is reduced by £1 for every £2 of income over £150,000 (which includes the value of pension savings and non-pensionable pay). 

The new measures, which will be effective from 6 April 2020, include:

  • raising the "threshold income" from £110,000 to £200,000, meaning individuals with income below this level will not be subject to the tapered annual allowance; 
  • raising the "adjusted income" (which takes into account employer pension contributions and non-pensionable pay) from £150,000 to £240,000, meaning that the annual allowance will only begin to taper down for individuals who also have "adjusted income" above £240,000; and
  • moving the minimum level to which the annual allowance can taper down from £10,000 to £4,000 for those individuals with total income (including pension accrual) over £300,000.  

The changes appear to apply to all schemes and not just the NHS Pension Scheme and other public sector pension schemes. 

The Budget and accompanying consultation documents also:

  • increase the lifetime allowance by CPI for 2020/21 to £1,073,100;
  • provide funding to ensure that individuals can derive or inherit a state pension from an opposite-sex civil partner;
  • launch a consultation on the proposed alignment of RPI to CPIH, which may have a significant impact on the funding of defined benefit schemes (depending on how pensions are increased and deferred benefits revalued); and
  • launch a call for evidence to review the options available to address the shortcomings in how tax relief operates under a net pay arrangement for individuals who do not pay income tax.