The threshold for tax charges on pension saving in the UK has been significantly increased today in chancellor Rishi Sunak's first budget.
From 2020/21, tax charges on pension saving - also known as tapering - will not apply to people earning below £200,000, up from £110,000 today.
The maximum amount of tax-relieved pension saving that can curently be made each year is £40,000, which tapers down to £10,000 for higher earners. The annual allowance will now taper down to £4,000.
It is hoped that the changes will address the so-called NHS 'tax trap' where staff inadvertently trigger charges by working overtime.
Wayne Segers, head of pensions solutions at XPS Pensions, said: "This change substantially raises the level of earnings that an individual can receive before they are affected by the tapered annual allowance.
"Most people will now not be affected by the taper and it will certainly make pension savings and work pattern decisions easier for a significant number of people."
This follows the move by the Bank of England this morning to cut interest rates from 0.75% to 0.25% amid the coronoavirus outbreak.
Sunak also confirmed today that the tax threshold for national insurance contributions would rise from £8,632 to £9,500, taking 500,000 employees out of taxation altogether.
There were no changes to insurance premium tax announced, while life insurers are exempt from new capital loss restriction rules.
Moreover, the chancellor launched a consultation into aligning the retail price index (RPI) with the lower consumer price index (CPI) as measure of inflation.
However, in a speech packed full of the phrase "getting it done", Sunak made no mention of additional funding for social care.
Steven Cameron, pensions director at Aegon, said that ministers need to urgently set out a fair and sustainable system, ideally with cross party support, detailing what the government will pay and what individuals will be asked to fund themselves.
"In our view, a cap on what individuals are required to pay is essential here to avoid fear that catastrophic care costs will wipe out their life savings and inheritance aspirations," he continued.
"With social care increasingly needed in later retirement, defined contribution pensions offer a ready-made funding solution."
