Budget 2020: Annual Allowance Pensions Changes – A Silver Lining or a Sting in the Tail?

The recent budget saw Chancellor Rishi Sunak announce some welcome changes to the rules for tapering of the Pension Annual Allowance (AA), particularly for those in certain income brackets, where they previously faced severe restrictions on what they could save into their pensions without facing a tax charge.


Most pension savers can get tax relief on up to £40,000 of pension contribution in a year, but from 2016, the £40,000 limit had instead gradually reduced for high earners, tapering down by £1 for every £2 in excess of the £150,000 ‘adjusted income’ limit, to a minimum of £10,000. If pension contributions exceeded the tapered AA, then an income tax charge would be due.

The impact of these complex rules has been keenly felt in the NHS, where many Doctors can have high earnings and build up significant pension benefits. This has resulted in some Doctors receiving high tax bills or seeing future pension benefits reduced, which in turn has made some reluctant to take on additional overtime, or even consider early retirement.

New Income Limits

There are two income measurements to consider before this pension tapering starts to apply, and the changes announced in the budget provided a significant increase to these income limits:

Pre 5 April 2020 Post 6 April 2020
Threshold income

(gross income less personal pension contributions)

£110,000 £200,000
Adjusted Income

(gross income plus employer pension contributions)

£150,000 £240,000


These changes will allow many more individuals to contribute to pensions at a much higher level.  We understand that some 98% of NHS consultants and 96% of GP’s will now no longer be affected by the tapering adjustment, which is a welcome announcement, providing much needed support to an already stretched NHS workforce when facing the Coronavirus crisis.


Income in Excess of £300,000

The sting in the tail comes to those who’s income exceeds £300,000. The government have confirmed in those cases that the current minimum AA of £10,000 will in those cases, be tapered down still further to £4,000.  Forward planning must be undertaken by these individuals to manage the contributions to their pensions to avoid excess tax charges at the additional rate of 45% / 46% depending on whether the individual is a UK or Scottish tax payer, and high paid employees should consider if they need to ‘opt out’ of their workplace pensions, given the compulsory minimum employer/employee combined contribution of 8% will likely exceed the tapered annual allowances available.

The effect of the new tapered AA can be seen in the table below:

Adjusted Income Pre 5 April 2020 Post 6 April 2020
£240,000 £10,000 £40,000
£250,000 £10,000 £35,000
£260,000 £10,000 £30,000
£270,000 £10,000 £25,000
£280,000 £10,000 £20,000
£290,000 £10,000 £15,000
£300,000 £10,000 £10,000
£310,000 £10,000 £5,000
£320,000 £10,000 £4,000


Lifetime Allowance (LA)

The LA is the maximum amount that a person can save in tax-advantaged pension schemes. The value of benefits is measured against the LA when benefits are first taken from a pension, and also on some other occasions, including the individual’s 75th birthday. The LA will increase in line with inflation from £1,055,000 to £1,073,100 from 6 April 2020.

If you are affected by any of the above or would like any further information, please contact Lynn Gracie, Carol Edwards or your usual AAB contact.

Sign up for the latest industry insights

  1. Blog7th Mar 2024

    Lynn Gracie, author of blog about non-dom tax breaks abolished

    Non-Dom Tax Status Abolished But A New 4 Year Residence Scheme May Soften The Blow

    For someone who has been working in tax for several years, non-domicile tax status and the UK tax breaks this provides has always been a controversial tax policy, no matter what government has been in power and no matter how…

    By Lynn Gracie

    View more
  2. Blog5th Mar 2024

    Lynn Gracie, author of blog about non-dom tax breaks abolished

    Lock In Tax Relief By Topping Up Your Pension Fund Before The 5th April

    Any financial advisor will tell you it’s never too early to start paying into your pension fund, but what many don’t necessarily appreciate is the significant tax savings that can be made whilst also building a secure plan for retirement.…

    By Lynn Gracie

    View more
  3. Blog15th Dec 2023

    Lynn Gracie, Private Client International Tax Director, author of blog about tax domicile

    Tax Domicile is for life – not just for Christmas!..or is it… ?

    With Christmas just around the corner, many people’s minds will be turning to Christmas dinner with the family, and perhaps the presents they may receive.  But, unlike some of those presents, a person’s domicile position isn’t just for Christmas –…

    By Lynn Gracie

    View more
  4. Blog2nd Oct 2023

    David Beckham Tax Law blog image

    New Spanish Digital Nomad Visa allows access to the very attractive… Beckham tax law

    How does living and working in Spain for up to 5 years, whilst only paying 24% tax sound to you? Spain has always been a ‘go to’ holiday and retirement destination for Brits. The attraction is obvious – what’s not…

    By Lynn Gracie and Charlie Dunning

    View more