Wayne Segers, Head of Pensions Solutions at XPS Pensions, said: “This change substantially raises the level of earnings that an individual can receive before they are affected by the tapered annual allowance, so potentially triggering tax charges. Most people will now not be affected by the taper and it will certainly make pension savings and work pattern decisions easier for a significant number of people.”
“Currently the maximum amount of tax-relieved pension saving that can be made each year is £40,000, which tapers down to £10,000 for higher earners. From 2020/21 tapering will not apply to those earning below £200,000 p.a. (up from £110,000 p.a.) However the annual allowance will now taper down to £4,000 p.a., down from £10,000 p.a.”
Jason Whyte, Associate Life and Pensions Partner at EY, comments: “The Chancellor has tackled the most urgent pensions issue, but has left many other important questions to the Spending Review. There’s a widespread expectation that higher rate tax relief cannot survive in its current form, but facing the challenge of COVID-19 and having just stepped into the role, the new Chancellor was clearly not ready to tackle it yet. Instead, he raised the threshold and adjusted income levels for the Annual Allowance Taper by £90,000 each. This is a pragmatic move at a time of pressure on the NHS, as many of the affected taxpayers are senior doctors who are turning down extra work for fear of large tax bills.
“The bigger question of what to do about pensions tax relief remains unsolved. But the Chancellor’s announcement of a full Spending Review, due to report back in July, suggests that we may well see a comprehensive review of pensions taxation before his “trilogy of fiscal events” in 2020 are done.”
Simon Hubbard, is a Senior Consultant and Actuary at Quantum Advisory: “The Tapered Annual Allowance has caused unintended consequences for the Government since it was introduced, especially for the NHS. The Government were aware of the need to rectify this and Coronavirus has no doubt increased the urgency. The policy should now only impact particularly high earners, which will be welcomed by many.”
Steve Watson, head of proposition, Smarterly, says: "A stay of execution? Despite the rumours leading up to the budget speech, pension higher rate tax relief remains in place. Good news also for higher earners as both the adjusted income and threshold income levels are increased by £90k so only those earning above £240k will now be affected. This provides much needed clarity for an estimated 98% of NHS consultants and 96% of GPs who no longer have to worry now the tapered annual allowance has been increased. But the trade-off is the reduction in the minimum annual allowance from £10k to £4k."
Tanya Wanless, Principal and Head of UK Pension Tax Consulting, Mercer, said: “Increases to both income thresholds will be a boost to many individuals previously restricted by the taper, who will either fall completely outside it or be less affected thus benefitting from a higher allowance for tax efficient pension savings.
“Under the new rules anyone with annual UK taxable income below £200,000, or £240,000 when pension savings are included, will be able to make annual tax efficient pension savings of £40,000. However higher earners, where income and pension savings combined exceed £300,000, may find their ability to make tax efficient pension savings reduce from £10,000 to a minimum of £4,000.
“There have been no wider pension tax relief reforms announced as had been rumoured prior to the Budget. It seems that the focus to address Coronavirus, and the need to relieve pressure on the NHS, including the taper, quickly, has taken the lead in driving the pension tax policy.”
Chris Knight, Chief Executive, Legal & General Retail Retirement: “The Government’s move to provide pensions tax relief to allow high-earning doctors to work additional shifts addresses an anomaly and could help our health system at this crucial time. However, while this move seems engineered to address a specific need of the NHS, we would have hoped that today’s Budget addressed the retirement planning of a larger group of people in the UK. Ideally, this sort of measure is an indicative first step in the Government showing willingness to ease the taxation of pensions contributions across a larger group and truly incentivise more people to save as much as possible towards their retirement aspirations. This would be a positive move, provided any such changes to pensions tax relief and the wider incentive structure of pensions were made with a reasonable lead time and close consultation with the retirement industry, in order to ensure they are effectively implemented.”
Chris Wagstaff, Head of Pensions and Investment Education at Columbia Threadneedle: Around half of the UK’s DB pension schemes will now have to work even harder to plug what for most is likely to be a further widening of a perhaps already unpalatably large deficit. These schemes have yet to materially hedge their interest rate risk, so this morning’s 50bps cut in Bank Rate may have come as a shock for them.
DB schemes’ liabilities are typically valued against the gilt yield curve which, to a degree, takes its lead from Bank Rate. As gilt yields fall, liabilities rise in value. Gilts yields before this morning's rate cut were already down this year by between 44 and 65bps. Crucially, the further gilt yields decline the more sensitive liability values become. In bond market speak, their duration increases. Only around 50% of UK DB schemes, through a combination of instruments, have hedged their liabilities against most of the risk that declining interest rates present.”
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