UK: Summer Budget: Pensions Are Back On The Agenda

Last Updated: 13 July 2015
Article by Martyn Shaw and James Keith

Last week, the Chancellor delivered his summer Budget and announced some key items which have the potential to significantly affect pensions savings in the UK.  With his announcement on the change to the tax relief afforded to high earners and the publication of a consultation which could result in far-reaching consequences for the way in which tax relief on pensions is applied generally, the Chancellor has again put pensions at the forefront of the Government's plans to help reduce the UK's deficit.

Pensions Tapered Annual Allowance

The Chancellor has announced the introduction of what is being termed the "tapered annual allowance".  This represents a cut to the tax relief afforded to high earners (i.e. those with incomes over £150,000) and is to come into effect from 6 April 2016.

The current annual limit which an individual can receive tax relief on is set at £40,000.  For the tax year beginning 6 April 2016, those with an income of more than £150,000 will have their annual allowance reduced.  The reduction will be applied in such a way that for every £2 of income an individual has over £150,000, their annual allowance will be reduced by £1.

The maximum reduction that can be applied by way of the tapered annual allowance is £30,000, meaning that anyone with an adjusted income of over £210,000 will have an annual allowance of just £10,000.

The reference to adjusted income relates to the way in which an individual's income is determined for the purposes of the tapered annual allowance.  To calculate this, an individual's income will include the value of any pensions savings (this is to ensure that an individual cannot avoid the new restriction through the operation of arrangements such as salary sacrifice).

Where an individual has a threshold income of £110,000 or less, they will not be subject to the new restriction (regardless of pension contributions or other adjustments to their income).

Individuals will still be able to use any unused annual allowance in the previous three years, but where the annual allowance is reduced by the taper, the carry forward will only be the balance of the tapered amount.

The Chancellor confirmed that the introduction of the tapered annual allowance is being used to fund the increase in the threshold for inheritance tax.

Consultation on Tax Relief

Together with the changes to the tax relief for high earners, the Chancellor published a consultation on possible changes to the way tax relief is applied generally to pensions.  This is contained in a short paper entitled "Strengthening the incentive to save: A consultation on pensions tax relief".

Whilst the paper is short, it does provide for interesting reading.  It points out that the pensions landscape has changed dramatically over recent years and attributes this principally to the decline in occupational defined benefit schemes and the improvement of life expectancy.  With this changed landscape, the Government highlights that individuals will need to save more in order to meet their aspirations in retirement.

The Government's key message is that individuals must be incentivised to save for their own retirement and that the correct tax system should be in place which supports individuals to take responsibility for making sufficient contributions to meet their expectations.  A change to the current system is being considered by the Government to ensure that individuals are supported to make those savings for their retirement.

The paper explains the current system as being characterised as "Exempt – Exempt – Taxed" in the way in which tax is applied to retirement savings and points out that by structuring tax relief in this way, the Government forewent nearly £50 billion in 2013-14 in tax revenue.

The Government recognises that the current system may be the best for encouraging people to save for their retirement.  It wants, however, to explore options for reforming the tax system to strengthen the incentive to save.  If any reform is to be made, the Government considers that it should be "simple and transparent", that it should allow for individuals to take "personal responsibility", that it should "build on the early success of automatic enrolment" and that it should be "sustainable".

One suggested reform noted in the paper is to change the current system to a "Taxed – Exempt – Exempt" regime.  The paper makes clear, however, that the Government is conscious that the consensus from the consultation may be that the current system is the best way for encouraging pension saving.  The paper is fairly light on detailed proposals and places the onus on respondents to make a case for the current system or to suggest a different method for achieving the Government's stated goal.

The paper contains a number of questions to which the Government welcomes responses.  The consultation will last until 30 September.

Additional Changes in Scotland?

If the above was not enough to contend with, the treatment of pensions tax relief in Scotland may change as well if the new Scottish Rate of Income Tax (SRIT) in April 2016 is devolved through the Scotland Bill.  The Command Paper in January this year noted that:

"Consistent with the approach taken with SRIT, the UK Government will need to work closely with stakeholders on the detailed implementation of income tax devolution in other areas, for example the operation of both pensions tax relief and Gift Aid.  The draft clauses include a power to make these changes in secondary legislation, which will be brought forward in due course to set out the detailed mechanics for this."

© MacRoberts 2015


The material contained in this article is of the nature of general comment only and does not give advice on any particular matter. Recipients should not act on the basis of the information in this e-update without taking appropriate professional advice upon their own particular circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.