What did we learn from the Budget about changes to pension reforms from 6th April 2020?
It was announced that there would be an increase to the tapered annual allowance for pensions.
- There will be a £90,000 increase to ‘threshold income’ – increasing it from £110,000 to £200,000. Broadly speaking threshold income is your net income less your gross personal pension contributions.
- This means that individuals with a threshold income of below £200,000 will no longer be affected by the tapered annual allowance and will be entitled to the standard £40,000 annual allowance.
- Again, there will be a £90,000 increase to ‘adjusted income’ – increasing it from £150,000 to £240,000. Broadly speaking adjusted income is your net income plus your employee occupational pension contributions and employer’s contributions into any scheme for you.
- For individuals who have an adjusted income for the tax year above £240,000, the annual allowance will begin to taper down.
- The annual allowance is reduced by £1 for every £2 of adjusted income above £240,000.
- However, the minimum reduced annual allowance has been restricted to £4,000 (reduced from £10,000).
Making pension contributions going forward
- The minimum your annual allowance can be restricted to is £4,000 so if you are unsure whether the above changes impact you start by making a contribution of £4,000.
- Tapered annual allowance will only affect you if you exceed both the threshold and adjusted income limits.
- Find out if you have any unused annual allowance from the previous three tax years that you can carry forward and add to your current annual allowance.
- Be aware of the lifetime allowance of £1,073,100 if you have significant savings in your pension pot.
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