The Chancellor Rishi Sunak used his first Budget to reduce tax charges on pensions savings.
Under new proposals which will come into effect from April 2020, Mr Sunak increased the point at which the annual allowance – the amount which can be saved into a pension free-of-tax each year – is ‘tapered’.
At present, anyone with a ‘threshold’ income of £110,000 or more (that is total income from all sources) is subject to a reduced annual allowance known as the ‘taper’. The standard allowance is £40,000 but it then tapers on a sliding scale to as low as £10,000 depending on earnings.
The Chancellor announced this threshold would be raised by £90,000 to £200,000 in a bid to remove the current workforce crisis which has seen many consultants in the NHS reduce shifts or retire early rather than face substantial tax bills.
However, Mr Sunak also reduced the minimum tapered annual allowance from £10,000 to just £4,000 for those with adjust incomes (that is total income plus pension input) over £312,000. This could mean that the highest earners need to establish the validity of pensions savings carefully.
It is worth noting that those in the 2015 pension with many years of NHS service, could still breach the standard annual allowance of £40,000 per year because of the technicalities of the scheme.
It was also confirmed that the lifetime allowance which governs total tax-free pension savings will increase in line with inflation from £1,055,000 to £1,073,100 for the 2020-21 tax year.
The ISA allowance remains at £20,000 but the Junior ISA limit will rise from £4,368 to £9,000 from April 2020.
The value of pensions and investments and the income they produce can fall as well as rise. You may get back less than you invested.