UK Pensions – Budget 2020 - Implications for pension schemes
The Chancellor of the Exchequer, Rishi Sunak, has delivered the government’s Budget for 2020. The pensions-related Budget announcements include the following:
- Net pay issue: Employees earning below the income tax threshold and contributing to a “net pay” scheme currently miss out on tax relief. The government has committed to reviewing options for addressing this issue and will shortly publish a call for evidence.
- Tapered annual allowance: The pensions annual allowance is the maximum amount of tax-relieved pension savings that can be accrued in a year. For those on the highest incomes, the annual allowance tapers down from £40,000. HM Treasury has reviewed the tapered annual allowance (particularly its impact on the NHS) and has decided that the two tapered annual allowance thresholds will each be raised by £90,000. 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. For those on the very highest incomes, the minimum level to which the annual allowance can taper down will reduce from £10,000 to £4,000 from April 2020. This reduction will only affect individuals with total income (including pension accrual) over £300,000.
- Lifetime allowance: The lifetime allowance, the maximum amount someone can accrue in a registered pension scheme in a tax-efficient manner over their lifetime, will increase in line with CPI for 2020/21, rising to £1,073,100.
- Future of RPI: The government and UK Statistics Authority (UKSA) have launched a consultation on the UKSA’s proposal to address the shortcomings of the Retail Prices Index (RPI) measure of inflation by aligning RPI with CPI including owner occupiers' housing costs (CPIH). The consultation covers, among other things, the issue of timing, including whether the UKSA’s proposal might be implemented at a date other than 2030, and if so, when between 2025 and 2030, and issues on technical matters concerning the implementation of its proposal. The consultation closes on 22 April 2020, and the government and UKSA intend to respond to the consultation before the Parliamentary summer recess.
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