Chancellor unveils plans to tackle NHS pensions crisis
Rishi Sunak had faced intense pressure to address the pension tax problem particularly in light of the coronavirus outbreak.
The problems revolve around the annual allowance – the amount that can be saved tax-free into a pension in any given year.
For most people, the annual allowance is capped at £40,000, but higher earners lose £1 from the annual allowance for every £2 of adjusted income (income including pension contributions) over £150,000 or threshold income (income excluding pension contributions) above £110,000 under a ‘taper’ system.
Savers face a substantial tax penalty for breaching the annual allowance, which resulted in many doctors choosing not to do overtime, putting pressure on an already-strained NHS.
In an attempt to resolve the issue, the chancellor has increased the threshold at which the tapered annual allowance kicks in from 6 April.
In his Budget speech, the chancellor said: “I’ve listened to concerns, from all sides of this House, that the pensions tax system is preventing doctors from taking on more hours.
“To significantly reduce the number of people that the tapered annual allowance affects I’m increasing both taper thresholds by £90,000, removing anyone with income below £200,000.”
Jason Hollands, managing director at wealth manager, Tilney, said: “This measure applies to all high earners, not just medical professionals and in effect this means that only those with earnings over £240,000 will be subject to an erosion of their annual pension allowance rather than it kicking in at those with total earnings over £150,000.
“This is therefore, a de facto tax cut for many high earning professionals.”
Steven Cameron, pensions director at Aegon, said: “While it’s disappointing that the chancellor didn’t simply scrap the dreaded ‘tapered annual allowance’, the £90,000 increase in the earnings threshold when it kicks in (now £200k) is greater than expected and should offer comfort to many more higher earners that they shouldn’t be affected.”
The chancellor also announced a £30bn coronavirus rescue plan in his Budget, including tax cuts for businesses and changes to the sick pay system.