The Finance Act 2020 received Royal Assent on 22 July. It has only one explicit pensions measure: Section 22, which reforms, from 6 April 2020, the Tapered Annual Allowance (TAA) – see below for more detail.
As a reminder, the Lifetime Allowance has also changed from the same date and now stands at £1,073,100 (previously, £1,055,000).
Reform of the TAA
Following an increase in the ‘threshold income’ and ‘adjusted income’, those individuals with a threshold income of between £110,000 and £200,000 and adjusted income of between £150,000 and £240,000 will no longer be impacted by the TAA. However, for individuals who do continue to be affected, the minimum TAA will be £4,000 (previously, £10,000).
This measure will affect an estimated 250,000 individuals who, before 6 April 2020, were impacted by the TAA. This figure is made up of:
- individuals who no longer fit the criteria as they now fall below either one or both of the thresholds,
- those who are still impacted by the taper but are entitled to make more tax relievable pension contributions, and
- individuals who will be impacted by the reduced minimum TAA.
- The threshold income, which is broadly net income before tax (excluding pension contributions), is increased from £110,000 to £200,000.
- The adjusted income, which is broadly net income plus pension accrual, is increased from £150,000 to £240,000.
- The minimum TAA is decreased from £10,000 to £4,000. So, someone affected could have a TAA of between £4,000 and £40,000.
- The measure will have effect for the tax year 2020/2021 and for benefits accrued on or after 6 April 2020.
The government introduced the TAA from 6 April 2016 for those with incomes of over £150,000. The TAA is triggered when both the threshold income and the adjusted income exceeds their designated limits. The £40,000 annual allowance is reduced by £1 for every £2 that the adjusted income exceeds £150,000, to a minimum annual allowance of £10,000.