17th Mar 2020

Taper changes welcomed but should it be abolished completely?

Newly-appointed Chancellor, Rishi Sunak, delivered his first Budget under the shadow of the coronavirus crisis which, as expected, received a great deal of focus.

However, like many in the pensions industry, the 20-20 Trustees team were interested to see whether the rumoured changes to higher rate tax relief would materialise. This, though, was a relatively quiet Budget for pensions, with changes to the Tapered Allowance thresholds appearing as a bit of a footnote right at the end of the Chancellor’s speech.

The announcement last week means that the threshold income will rise from £110,000 to £200,000 for the 2020/21 financial year, and so those individuals below this income level will not be affected by the Tapered Annual Allowance. The Annual Allowance will only begin to taper down for individuals who have an “adjusted income” of over £240,000. However, he also said that the minimum level to which the annual allowance can taper down to will reduce from £10,000 to £4,000 though the Chancellor claimed this would only impact those with a total income of about £300,000. 

In view of the recent controversy it has created for NHS workers, it was perhaps not surprising (and certainly pertinent given that our potential reliance on the NHS has never been greater than it will be in the coming months) that Mr Sunak selected the Tapered Allowance as his pension reform of choice. The Chancellor explained that he had ‘listened to concerns from all sides on how the pensions tax system is preventing doctors from taking more hours.’ The changes will mean that around 98% of consultants and 96% of GPs will be taken out of the taper altogether. And whilst Mr Sunak was clearly framing the announcement to support NHS workers, this news will also be welcome to a great number of high earners with the Treasury predicting an immediate reduction of £180m in tax receipts for 2020/21.

However, for those of us, like me, who believe that the pensions taxation system remains hideously complex and lacking in genuine long-term strategy, the changes to the taper seem a little bit like shuffling the deck chairs on the Titanic. I fondly remember ‘A-Day’ back in April 2006 when we were promised “pensions simplification”. For those of you cannot recall those heady days – or have chosen to block them from your mind – the aim of A-Day according to Wikipedia (please try not to laugh/cry when reading this) was to “reduce the complicated patchwork of legislation built-up by successive administrations which were seen as acting as a barrier to the public when considering retirement planning.”

It seems that history is always destined to repeat itself and that very ‘patchwork’, albeit in slightly different colours, is exactly what we continue to have. So, whilst I welcome the taper changes, actually I’d prefer it if it was abolished altogether and that we try and move back to something that savers can actually understand and – importantly – hang their hat on in terms of planning for their futures. Of course, there will be a further Budget later in the year so we can live in hope (if not expectation)!

It’s also worth noting that the taper changes were not the only pensions-related items in the Budget; the widely anticipated consultation regarding Retail Prices Index reform was also published by the Treasury. 20-20 Trustees will of course be responding to the consultation, setting out our concerns, so look out for our blog on this, coming soon.