Rishi Sunak’s first Budget as Chancellor was undertaken against the backdrop of the global outbreak of coronavirus (COVID-19), there was some news affecting pensions.
These are summarised below:
1. Annual Allowance 2020/2021
The Standard Annual Allowance remains at £40,000.
2. Money Purchase Annual Allowance 2020/2021
The Money Purchase Annual Allowance remains at £4,000.
3. Tapered Annual Allowance 2020/2021
The “Adjusted Income” and “Threshold Income” levels have been increased by £90,000, to £240,000 and £200,000 respectively. Anyone subject to tapering still has their Annual Allowance reduced by £1 for every £2 over the Adjusted Income level.
The minimum Tapered Annual Allowance, however, is now £4,000 (previously £10,000). This applies for those having income over £312,000. Those earning more than £300,000 will therefore see a reduction in their Annual Allowance and will pay more tax as a result.
Similarly, 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, but their Tapered Annual Allowance has increased.
4. Lifetime Allowance 2020/2021
Confirmation was provided that the Lifetime Allowance (LTA) for 2020/2021 would be increased by CPI. The LTA for 2020/2021 is therefore £1,073,100.
5. Tax Relief
Tax relief for pension schemes remains unchanged. The Government is, however, going to publish a call for evidence on pensions tax administration. This will look at reviewing options for addressing differences in pension tax relief, especially in respect of those earning around or below the level of the personal allowance.
6. Income Tax
Income tax rates, bands and allowances remain unchanged. The personal allowance and higher rate threshold remain at £12,500 and £50,000 respectively. Note Scottish rate taxpayers are subject to rates, bands and allowances as announced in the Scottish Budget. These are not reproduced here.
7. National Insurance Thresholds
As expected, the primary threshold, the point at which employees and the self-employed start to pay NI contributions, has increased to £9,500.
8. Consultation on the Reform to Retail Prices Index Methodology
The Government and the UK Statistics Authority (UKSA) have, alongside the Budget, issued a consultation on the UKSA’s proposal to address the shortcomings of the Retail Prices Index (RPI) measure of inflation.
The Consultation covers, amongst other things, the issue of timing of the change, 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 proposal’s implementation.
The Consultation is open until 22 April 2020, with a response expected before the Parliamentary summer recess. Pension schemes may be affected in various ways – for example in assets held such as index-linked gilts or in benefits under the scheme linked to RPI. Watch this space!!