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Spring Budget 2020: Pensions – the small print

Aside from the headline grabbing news, there were also increases announced to the pension lifetime allowance and a review of ‘net pay’ pension arrangements. No page-turners here but of consequence nonetheless.

The pension lifetime allowance will be increased from 6 April 2020 to £1,073,100, which is in line with the increase in CPI in the year to September 2019. When the rate of CPI (1.7%) is applied to the current lifetime allowance of £1,055,000, it would usually be rounded to the next £100, i.e. £1,073,000. However, it appears that the new Chancellor is in a generous mood as the lifetime allowance is being set at a level that is £100 higher than that. This is unlikely to have a significant impact on one’s retirement planning compared to the current year’s allowance but a positive nonetheless.

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Rachel O'Donoghue

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The pension lifetime allowance will be increased from 6 April 2020 to £1,073,100, which is in line with the increase in CPI in the year to September 2019. When the rate of CPI (1.7%) is applied to the current lifetime allowance of £1,055,000, it would usually be rounded to the next £100, i.e. £1,073,000. However, it appears that the new Chancellor is in a generous mood as the lifetime allowance is being set at a level that is £100 higher than that. This is unlikely to have a significant impact on one’s retirement planning compared to the current year’s allowance but a positive nonetheless.

Separately to this, the government will be consulting on pension tax relief administration and will be considering the options available to address the various way in which tax relief is administered. The context of this is the inconsistency that exists within the current tax relief system for those employees who are members of a workplace pension scheme that operates the ‘net pay’ arrangement. If they earn below the personal allowance, currently £12,500, they do not receive basic rate tax relief on their pension contributions. If they were members of a ‘relief at source’ scheme, such as a personal pension, this would not be the same and they would automatically benefit from 20% or basic rate relief. This is clearly unfair to those employees and although it is positive to see this matter being addressed, this has been a long-standing problem of which the government are aware.

 

It would have been more meaningful if the Chancellor had committed to concrete measures, which would give all employees the same level of tax relief rather than those lower earners in net pay pension arrangements being at a financial loss. It is estimated that the effect of the relief not being provided saves the Treasury c£111m each year.

The lifetime allowance increase was expected but welcomed, it will be interesting to see how matters develop for net pay arrangements, and those pension savers affected. We will be publishing updates in due course.

 

Read more on the Budget here.

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