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Budget 2020: Excess pension contribution charges eased

To ensure doctors are not deterred from working extra shifts, the government will introduce changes to the income thresholds from which tapering of the annual allowance applies.

12th Mar 2020
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Pensions and HMRC powers

It would have been too much to expect a draft Finance Bill to be published which did not include some tinkering with the pension tax regime (no Finance Bill since 2004 has managed it!). This year’s contribution to the “simplification of pensions” is a tweak to the thresholds for the “tapered annual allowance”.

Annual allowance

Most people are allowed to enhance the value of their pension pot by up to their annual allowance, which is £40,000 a year, with no tax charges.

The exception is for high earners who are subject to a taper provision which can, currently, reduce their annual allowance to £10,000. Where the additions to the pension pot (complicated valuation for final salary schemes), exceed the taxpayer’s annual allowance they are subject to an annual allowance tax charge at their highest marginal tax rate.   

This, as already reported, has led to problems within the NHS where senior consultants have been reducing their service hours or even taking early retirement to protect themselves from severe tax liabilities.

New thresholds

The new provisions, which will take effect from 6 April 2020, will increase two thresholds, both of which must apply for the taper to be imposed:

  • Threshold income (net income excluding pension) will rise from £110,000 to £200,000;
  • Adjusted income (net income plus pension) will rise from £150,000 to £240,000.

This means that many taxpayers who are currently affected by these thresholds will now escape the taper provisions altogether. However, for the very highest-paid, the annual allowance can be tapered down to as little as £4,000 (where adjusted income exceeds £312,000), a significant reduction from the current minimum of £10,000.

These threshold changes are not restricted to NHS staff, so are likely to have the greatest impact for highly paid banker and chief executives.

Help the NHS?

Whether this tweaking of thresholds will help the beleaguered NHS on balance is uncertain.

The Treasury’s impact assessment still envisages that some individuals will be driven to early retirement or reduced hours as a response. It is to be hoped that those who are do not include too many key NHS staff.


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