Budget 2020: pensions tapered annual allowance raised

Chancellor Rishi Sunak has used the Budget to take action on concerns raised about the impact of the pension tax regime on senior NHS medical staff, announcing plans to significantly reduce the number affected by the tapered annual allowance, which is to increase by £90,000

Sunak said the move will remove anyone with an income below £200,000 from the ‘pensions trap’, and will take 98% of consultants and 96% of GPs out of the taper altogether.

The two tapered annual allowance thresholds will each be raised by £90,000. This means that from 2020-21 the ‘threshold income’ will be £200,000, so individuals with income below this level will not be affected by the tapered annual allowance, and the annual allowance will only begin to taper down for individuals who also have an ‘adjusted income’ above £240,000.

For those on the very highest incomes, the minimum level to which the annual allowance can taper down will reduce from £10,000 to £4,000 from April 2020. This reduction will only affect individuals with total income (including pension accrual) over £300,000. Proposals to offer greater pay in lieu of pensions for senior clinicians in the NHS pension scheme will not be taken forward.

Sunak said the changes would ensure ‘hardworking doctors’ did not seek to leave the medical service because of concerns about pension provision.

Laura Smith, director, head of healthcare at chartered accountants Wylie & Bisset said that the announcement in the budget has been generally well received and should mean that many NHS Scheme members who were subject to the tapering calculations should now avoid a reduction in their annual allowance and reduce, or hopefully mitigate, any public sector transfer club (PSTC). 

‘If your pension input amount is below £40,000 and threshold income is under £200,000, you should not have a public sector transfer club (PSTC) going forward’, Smith said.

‘Members of the scheme must note that the changes only take effect from 6 April 2020 and they will be subject to the current rules for 2019/20. If a PSTC is determined for 2019/20, it will require to be reported on the 2019/20 tax return and either paid via self assessment or a scheme pays election.

‘Many of our clients have considered reducing practice sessions and out of hours commitments. Some have already made this decision and implemented the changes to their working lives. And many of our clients are opting out of the scheme for a period each year to minimise any public sector transfer club. 

‘I would recommend that any GP who has reduced sessions in their practice, reduced out of hours commitments and/or has opted out of the superannuation scheme, review their position to ensure any changes made or considered remain fit for purpose in advance of the new thresholds coming into play next month.’

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