The chancellor announced an increase to the two thresholds over which the annual allowance begins to be tapered from 6 April 2020. Those individuals with a ‘threshold income’ of up to £200,000 and ‘adjusted income’ of up to £240,000 will no longer be subject to a restriction of the annual pension allowance.
As a reminder the threshold income is broadly net income reduced for personal pension contributions and the adjusted income is net income including pension contributions (both personal and employer). The annual allowance is reduced where both the threshold and adjusted income of an individual exceed the relevant limits.
The reduction will be calculated as £1 for every £2 that an individual’s adjusted income exceeds £240,000. Previously, the annual allowance could only be reduced to a minimum of £10,000, however the sting in the tail of the pensions announcement was that this minimum is to be reduced to £4,000. An individual with adjusted income of over £312,000 will therefore only be able to pay £4,000 into their pension from 6 April 2020.