The Chancellor has announced increases to the pensions' annual allowance taper thresholds and a reduction to the minimum tapered allowance amount from April 2020.

The annual allowance taper, introduced in 2016, provides that the pensions annual allowance which is currently £40,000, is reduced by £1 for every £2 that an individual's adjusted income exceeds the threshold.

From April 2020:

  • The threshold income level will be increased by £90,000 to £200,000.
  • The adjusted income threshold is increased from £150,000 to £240,000.
  • The minimum annual allowance threshold is reduced from £10,000 to £4,000. 

This means that from 6 April 2020 the annual allowance taper will only apply where adjusted income exceeds £240,000 and threshold income (net income without pension contributions) exceeds £200,000.

Where the taper does apply the minimum annual allowance available will be just £4,000. The individual will now need to have an adjusted income of £300,000 (previously £210,000) before full taper and the £4,000 allowance applies.

The lifetime allowance is increased with inflation to £1,073,100 from April 2020.

Links to our subscriber guides

Pensions: Tax rules and planning
Pensions are a tax-advantaged method of saving: funds inside a pensions wrapper are not subject to tax and so income and capital grow tax-free within a registered scheme, while contributions can attract tax relief.

Pensions: Tax charge for excess contributions
When does a tax charge arise for excess contributions? What are taxpayers' responsibilities under Self Assessment? 

External links

Policy paper: Pensions Tax Changes to income thresholds for calculating the tapered annual allowance from 6 April 2020