Houses of Parliament

Pension rules relaxed for higher earners


Threshold at which the taper commences raised by £90,000

Chancellor of the Exchequer, Rishi Sunak, announced during his Budget 2020 speech on 11 March a relaxing of the rules on how much higher earners can save into their pensions while receiving tax relief.

Pension contributions are to be reformed for high earners, including doctors and other senior medical professionals, which have impacted on higher-earning National Health Service (NHS) staff. The Chancellor said that 98% of consultants and 96% of GPs will no longer be affected by the new rules.

It has been widely reported that many doctors are inadvertently breaching the allowance by working overtime to cover NHS shortfalls and have incurred the tax charges. Others have been reducing their working hours or even deciding to retire early to try and avoid tax penalties.

Most savers can receive tax relief on up to £40,000 of pension contributions in a year – known as the ‘annual allowance’. But high income earners with an ‘adjusted income’ above £150,000 are restricted by how much they can save into their pensions, as their £40,000 annual allowance is reduced by £1 for every £2 of income above £150,000, with a maximum reduction of £30,000. This means anyone earning more than £210,000 can pay only £10,000 into a pension each year and claim tax relief.

In his Budget 2020 speech, the Chancellor announced that the Treasury would raise the threshold at which the taper commences by £90,000 for the tax year 2020/21. Under these new changes, the threshold income will be raised to £200,000 with effect from April, meaning individuals with income below this level will not be affected at all by the tapered annual allowance.

Under the new rules, the annual allowance will only begin to taper down for individuals who also have an adjusted income above £240,000. For those on the very highest incomes, the minimum level to which the annual allowance can taper down will reduce from £10,000 to £4,000 from April 2020.

The pension lifetime allowance for the tax year 2020/21, which is the maximum pension pot that can be accumulated before being subjected to tax penalties on withdrawals, has increased in line with consumer price inflation to £1,073,000.

The State Pension will also increase by 3.9% from 6 April 2020. The rise is the result of the triple-lock system, which states that the State Pension must increase by September’s price inflation, average earnings growth or 2.5% – whichever is higher.

For more information or pension advice, please get in touch with one of our financial planning & Wealth Management team on 0808 144 5575 or email

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