As you all be aware, the Chancellor announced his 11 March 2020 Budget in the House of Commons yesterday. In amongst a host of measures there were one or two that will affect Armed Forces Pensions, but only for relatively few people.
Here are the key take-aways:
- Tapering – the tapered thresholds for pension tax relief have both been increased by £90,000, considerably more than was expected by most pension commentators. This has been a hot topic for high earners, especially within the NHS and the Defence Medical Services. It means that from 2020-21 earners with a threshold income of less than £200,000 (as opposed to £110,000 currently) will not be affected by the tapered annual allowance and the allowance will only begin to taper down for individuals who also have an adjusted income above £240,000. Aligned to this is the reduction in the minimum level to which the annual allowance can taper, down from £10,000 to £4,000.
- Annual Allowance – although these tapering changes represent a significant benefit for relatively few Armed Forces personnel, some commentators predicted that they would be accompanied by a reduction in the £40,000 Annual Allowance threshold. This would have had a significantly negative impact on the several thousand AFPS members affected by Annual Allowance tax liabilities. The good news is that there is no such reduction mentioned in the full Budget report or the associated specialist pension tax websites. We continue to campaign for fairness for the Armed Forces with respect to pension taxation and believe the Annual Allowance threshold should be raised to a more appropriate level and also be linked to CPI. Currently it remains at £40,000 and has stayed at this level since 2012 with no CPI increases.
- Lifetime Allowance – this will increase in line with CPI for 2020-21, rising to £1,073m.
- Before the Budget there was also discussion about the possibility of changes to pensions tax relief (removal of high rate tax relief) and wholesale long term reform of the pension taxation system. These did not materialise but it is worth remembering that this is the first of two Budgets this year, with the next due in the autumn.
- It is also worth noting that the Chancellor announced a 3.9% increase in the State Pension so the new state pension will increase from £168.60 to £175.20 per week and the previous basic old age pension rises from £129.20 to £134.25.