Pensions overhaul expected at budget
10 March 2020
According to several reports, Rishi Sunak will use his first budget to make some substantial changes and amend some of the pension rules that experts have been campaigning for.
It is expected that one of the announcements will deliver a tax boost for high earners by tackling pension tax relief and raising the tapered annual allowance threshold income from the current £110,000 to £150,000.
At present, savers benefit from tax relief on contributions they pay into their pension scheme for up to a maximum of £40,000 per year, and anything that exceeds this limit is subject to the same tax as ordinary earnings. For individuals who earn more than £110,00, their annual tax-free limit can reduce from £40,000 to £10,000 but cannot decrease to below £10,000. By increasing the earnings threshold from £110,000 to £150,000, there will be substantially less people who will be impacted by the annual allowance taper. It is felt that this move will have a significant effect on senior doctors, as it has been reported that many have been refusing working overtime to avoid being hit by the taper. This is particularly pertinent considering the current situation with the coronavirus, as doctors will be needed to work more than ever.
Pensions Expert confirmed that the British Medical Association and NHS leaders raised concerns with the Treasury about the impact of the tapered annual allowance on the health service. It seems that Mr. Sunak has acknowledged these concerns and wants to address the issue. A Whitehall official said:
“Lifting the threshold should, to a certain extent, alleviate the issue of consultants wanting to take extra shifts without getting penalised.
But this is a very generous tax break and, although we understand why the doctors are unhappy about this, we can’t remove the threshold completely because these are very well-paid people we are talking about.”
There has also been speculation that Mr. Sunak will address a tax anomaly that penalises approximately 1.7 million low-income savers. Workers who have been automatically enrolled into a workplace pension, so earn at or above the auto-enrolment trigger of £10,000 a year, but earn below the current basic rate tax threshold of £12,500, do not receive tax relief on their pension contributions in certain situations. Where they are a member of a net pay scheme, they will have their employee pension deduction taken from their gross pay but will not receive the associated tax relief as they do not actually pay tax, so there is no relief available. This means that they effectively pay 25% more to contribute the same amount to their retirement pots as individuals earning more than them. This is totally unfair and affects those people who arguably need the additional money more than others.
The Sunday Times stated that the issue mainly affects women, and reported that, during a debate in parliament, the deputy leader of the House of Lords, Lord Howe, confirmed:
“Treasury colleagues will make announcements on the next steps in due course.”
This was in response to a question from Baroness Ros Altmann, who has called for the system to be overhauled.
The CIPP, along with other stakeholders, have campaigned for the issue to be resolved so would really welcome any changes that serve to protect the victims of this anomaly.
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