On 11 March 2020, the Chancellor of the Exchequer, Rishi Sunak, delivered the Government's 2020 Budget.The only change to pensions comes in the form of a change to the tapered annual allowance.

Change to the tapered annual allowance

The Chancellor has announced that the two tapered annual allowance thresholds for pension tax relief will be increased by £90,000.  This represents an increase from £150,000 to £240,000 for "adjusted income" – broadly total pre-tax income – and an increase from £110,000 to £200,000 for "threshold income".

In addition, the minimum tapered annual allowance will decrease from £10,000 to £4,000.

What is the annual allowance?
The annual allowance is the amount of pension a person can save each year while still benefitting from tax relief.  This is calculated based on contributions to an individual's defined contribution pension schemes in that year added to the increase in the value of their benefits in any defined benefit pension schemes in that year.  It is currently set at £40,000. 

If an individual exceeds their annual allowance, any excess is in effect treated as income and is subject to an annual allowance charge at the relevant rate of income tax.

What is the tapered annual allowance?
At present, if an individual earns more than £110,000 and their adjusted income is more than £150,000, their annual allowance is subject to a taper.  For every £2 of adjusted income above £150,000 per year, £1 of annual allowance is lost, down to a minimum of £10,000.

From 6 April 2020, the thresholds will be £200,000 and £240,000 respectively, with the annual allowance tapering from £40,000 to £4,000.

The Chancellor has indicated that the minimum annual allowance would only apply to people earning more than £300,000 per year.

Why has this change been made?
The Government has been facing pressure from NHS doctors who have been taking early retirement or giving up overtime in order to avoid the risk of being hit with unexpected annual allowance charges.  This has been impacting on NHS resources, which of course is a particularly present issue in the face of the new coronavirus (COVID-19).

The Chancellor stated that this change would result in 98% of consultants and 96% of GPs no longer being affected by the taper.

This change will of course affect people outside of the NHS too.

What other potential changes had been predicted?

Reports had suggested that the Chancellor's predecessor, Sajid Javid, had been exploring the possibility of cutting pension tax relief for higher-rate tax payers.  This did not materialise.


Many in the pensions industry had been calling for the complicated annual allowance taper to be scrapped altogether.  This is an opportunity missed.  Though this taper increase will be welcome news to a significant number of individuals who were being impacted by the previous level, notably NHS doctors, there will still be significant numbers of people caught by it, and some who will find the maximum annual pension savings dropping from £10,000 to only £4,000.

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