How the March 2020 budget could affect your pension annual allowance

The last couple of UK budgets have been quiet in relation to changes in pension legislation. The media and general financial services industry have often tried to second guess changes, including a number of areas such as tax-free cash, salary exchange and pension allowances. However, despite the almost annual speculation, not much has changed since the Pension Freedoms Act which was announced by the then Chancellor of the Exchequer, George Osborne, in his March 2014 budget.  

At the time there was little, if any, speculation about how people would receive their future retirement income. The changes came out of the blue and probably taught us all a lesson, that anything can change and second guessing is generally futile.  

The forthcoming budget on 11th March is likely to bring some change to pension rules, especially around the Annual Allowance and subsequent Tapered Annual Allowance that can impact high earners and their ability to save into a UK pension. Despite mentioning there is no point speculating, I am not going to let that stop me guessing some of the solutions that may be found! 

The issue catching the media’s attention has generally been centred around doctors and surgeons being unwilling to work extra hours because it has a detrimental effect on their pension and tax liability.  

Away from the medical profession many other employees are caught in similar situations or in the worst cases, blindly contributing too much, unaware they are creating a personal tax liability and never reporting it.  

One potential change could be moving the income limit, at which point calculations must be carried out to ascertain if the individual will suffer a Tapered Annual Allowance. Currently, £110K is the threshold but moving this to £150K should remove the requirement for a number of individuals (including the bulk of the medical profession) to undertake complex calculations and avoid any Tapered Annual Allowance concerns.  

The Tapered Annual Allowance can result in an individuals’ Annual Allowance reducing from £40,000 down to as little as £10,000. 

Many of our clients have high earning employees caught in Annual Allowance traps and we provide a pro-active approach, where possible, by amending pension contributions up or down and try to fit around what is tax efficient but also within auto enrolment limits. Many employers now have a greater understanding of the potential limitations and help provide their employees with external guidance to ensure they are fully informed of their own circumstances.  

With pensions, there are always several planning points that can be considered and if you would like to find out how we can possibly help your company’s high earners, regardless of what the budget brings, please get in touch.

By Richard Petrie, Payroll & Employment Taxes Senior Manager.

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