Budget 2020: Pension tax Budget reaction: ‘sweeping simplification not Treasury tweaking needed’

In today’s Budget, the Chancellor announced that the thresholds for the tapered annual allowance for pension tax relief will be raised to £240,000 (for adjusted income) and £200,000 (for threshold income).

Commenting, Steve Webb, partner at LCP said:

“The system of pension tax relief is far too complicated and this is a missed opportunity to make the system simpler and clearer. Although raising the thresholds will substantially reduce the number of people affected by the tapered annual allowance, some higher earners are still at risk of being caught, especially if they get a promotion or take on additional responsibilities. What was needed was sweeping simplification but what we got was more Treasury tweaking.

“The unintended consequences of this complexity have been seen most clearly for senior NHS staff. With the pressure on the NHS arising from the Coronavirus outbreak, it is even more urgent that doctors can put in extra hours without the risk of unexpected pension tax bills. Although most doctors will now excluded from the tapered annual allowance it would have sent a much clearer message to abolish the taper altogether’.

At the other end of the income scale, the Chancellor also announced a review of the tax relief rules as they affect lower paid workers.

Steve Webb said:

“Around 1.7 million lower paid workers earning less than the personal allowance currently miss out on the help with their pension that other lower paid workers receive, based solely on the way in which their pension scheme administers pension tax relief. This injustice, which affects many lower paid workers in particular must be addressed. Instead, all we have from the Treasury is the promise of a ‘call for evidence’. If a review means no action for another year, this will prolong the unfairness to a group who need all the help they can get with their pensions”.