Last Wednesday the Chancellor, Rishi Sunak, delivered the UK budget. You can read our tax analysis from the budget here. Alongside the budget, the government and UK Statistics Authority (UKSA) have launched a joint consultation on UKSA proposals to align the Retail Prices Index (RPI) measure of inflation with a variant of the Consumer Prices Index (CPI) which includes owner occupier's housing costs (CPIH).
What do the budget and the consultation mean for pensions?
Combatting the doctors' pension taper
From 2020/21 there will be £90,000 increases to both pension taper thresholds, targeted to facilitate the provision of public services, specifically NHS doctors. The Conservative manifesto promised to urgently review the "punitive" doctors pension tapers, read our blog on this here. This has become even more topical in view of the current pandemic.
How will the threshold increase help?
Individuals earning over the threshold £110,000 annual income level currently have their annual tax-free pension savings allowance tapered. This discourages doctors from working extra shifts, and has been said to precipitate early retirement by those seeking to avoid having their pensions hit by the punitive tax rate.
The threshold will be raised to £200,000 which means that the vast majority of doctors and consultants will now be out with the ambit of the taper.
Minimum taper amount
Once a certain income level is exceeded, the annual allowance of those with income above that level gradually tapers down. From next month the minimum amount by which the taper applies will be reduced from £10,000 to £4,000. This will only affect those with annual income over £300,000.
Other key pensions points from the budget
A call for evidence on a resolution of the "net pay problem". This initiative was first announced in the Conservative Party's 2019 General Election manifesto.
Funding which will allow opposite-sex civil partners to derive or inherit a state pension from one another.
From 2020-21 lifetime allowance will increase (in line with CPI) to £1,073,100.
Legislation will be introduced to enable new collective money purchase schemes (the new pension scheme model that will be established by the Pension Schemes Bill 2019-21 once it has royal assent) to be registered schemes for tax purposes.
RPI consultation launched
The consultation covers, among other things, the issue of timing, including whether the UKSA's proposal might be implemented at a date other than 2030, and if so, when between 2025 and 2030 and issues on technical matters concerning the implementation of its proposal. The consultation will run for six weeks until 22 April. The government and UKSA will respond to the consultation before the Parliamentary summer recess. View the consultation here.
This will be of particular interest to the many defined benefit (DB) pension schemes using RPI as a measure for indexation of pensions in payment and revaluation of deferred benefit. As stated in our previous blog on this topic, previous attempts by DB pension schemes to change the measure of inflation from RPI to CPI have been the subject of a number of disputes. Read our previous blog here.
What's next?
Unusually, this year, the UK is expected to have two budgets. Look out for the team's commentary on both the outcome of the RPI consultation, and then on the Autumn budget later in the year.
If you would like to discuss anything raised in this blog, please get in touch with your usual contact at Brodies.
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