Despite all of the traditional talk of changes to pensions tax relief in the run-up to the Budget, today’s Budget turned out to be a quiet one for pensions, with the Chancellor’s focus and priorities elsewhere.
However, the Budget did include some pensions-related announcements including the launch of the consultation on the future of the Retail Price Index (RPI), a review of the net pay anomaly, an increase to the national insurance threshold and changes to the tapered annual allowance that have been affecting NHS clinicians.
Government announces launch of consultation on reform of Retail Price Index
Despite the uncertainty surrounding RPI reform following Savid Javid’s resignation, the Government launched, alongside the Budget, the consultation on the UK Statistics Authority (UKSA) proposal to address the shortcomings of the RPI measure of inflation.
The consultation considers among other things, if the UKSA’s proposal should be implemented at a date other than 2030, and if so, when that date should be between 2025 and 2030.
The consultation will close on 22 April 2020. The Government and the UKSA have stated they will respond to the consultation before the parliamentary summer recess.
Review of net pay anomaly
The government has committed to reviewing the options for addressing the net pay anomaly which means that around 1.7m members of schemes that operate tax relief on a net pay basis are missing out on tax relief to which they are entitled. The Government has said that it will shortly publish a call for evidence on pensions tax relief administration as part of this.
Increase in national insurance threshold
The Budget confirms the Government’s commitment to increase the national insurance threshold (the threshold at which employees and the self-employed start paying National Insurance contributions (NICs)) from £8,632 to £9,500 from April 2020. This is the first step in the government’s aim to increase the national insurance threshold to £12,500 and it should save the average employee around £100 per year.
Changes to the tapered annual allowance
In order to address the difficulties being caused by the tapered annual allowance (not least in relation to the retention of doctors and other senior clinicians in the NHS), the Chancellor also announced increases to two thresholds that have to be met before the tapered annual allowance applies. These thresholds (which measure an individual’s “threshold income” and their “adjusted income”), will each be raised by £90,000 to £200,000 and £240,000 respectively as of April 2020. The Chancellor stated this would mean around 98% consultants and 96% of GPs will no longer be affected by the tapered annual allowance.
For those on the very highest incomes (over £300,000), the minimum level to which the annual allowance can fall as a result of the taper will be cut from £10,000 to £4,000 from April 2020.