Wylie & Bisset: Budget 2020 amendments to pension rules welcomed by GPs
Wednesday’s Budget announced that the income thresholds for calculating the tapered Annual Allowance will increase by £90,000 from 6 April 2020, a move which was broadly welcomed by General Practitioners and members of the NHS Pension Scheme.
From 6 April 2020, only those with a total taxable income in excess of £200,000 are likely be subject to the tapering of their available Annual Allowance going forward.
Since 2016, if a GP’s threshold income exceeded £110,000 and adjusted income exceeded £150,000, they were subject to the tapering rules and their Annual Allowance reduced from £40,000 to as low of £10,000. This resulted in some individuals with deemed growth of less than £40,000 being subject to a Pension Savings Tax Charge (PSTC).
The Budget has now increased the threshold income to £200,000 and adjusted income to £240,000. Therefore, if a GP’s threshold income is below £200,000 from 6 April 2020, they will no longer be subject to the tapering calculation on their Annual Allowance and will be entitled to £40,000 of annual allowance.
If their Pension Input Amount (PIA) each tax year going forward is £40,000 or less and their threshold income is below £200,000, they should no longer be subject to a PSTC.
However, where adjusted income exceeds £300,000, the budget did introduce a change whereby available Annual Allowance for these individuals may be reduced from the current minimum of £10,000 to £4,000. Individuals earning at these levels are likely to see an increase in their PSTC from 6 April 2020.
The Chancellor also confirmed the Lifetime Allowance limit for 2020/21 is £1,073,000.
Laura Smith, director, head of healthcare at chartered accountants Wylie & Bisset, said that the announcement in the budget has been generally well received and should mean that many NHS Scheme members who were subject to the tapering calculations should now avoid a reduction in their annual allowance and reduce, or hopefully mitigate, any PSTC.
She said: “If your Pension Input Amount is below £40,000 and threshold income is under £200,000, you should not have a PSTC going forward.
“Members of the scheme must note that the changes only take effect from 6 April 2020 and they will be subject to the current rules for 2019/20. If a PSTC is determined for 2019/20, it will require to be reported on the 2019/20 tax return and either paid via self-assessment or a Scheme Pays Election.
“Many of our clients have considered reducing practice sessions and Out of Hours commitments. Some have already made this decision and implemented the changes to their working lives. And many of our clients are opting out of the scheme for a period each year to minimise any PSTC.
“I would recommend that any GP who has reduced sessions in their practice, reduced Out of Hours commitments and/or has opted out of the superannuation scheme, review their position to ensure any changes made or considered remain fit for purpose in advance of the new thresholds coming into play next month.”