Workplace Pensions 2020-21 Tax Year Update
With the start of the 2020-21 tax year, the following changes to workplace pensions’ thresholds and allowances are kicking in.
This change only applies to schemes where contributions are calculated on a Qualifying Earnings basis.
From the 6th of April 2020, the lower level of the Qualifying earnings band will increase from £6,136 to £6,240. The upper level will remain capped at £50,000.
This means that contributions will be calculated on the worker’s gross annual earnings that fall between £6,240 and £50,000, known as “qualifying earnings”. For example, if a worker earns £20,000 their qualifying earnings will be £13,760.
There will be no changes to the minimum contribution levels.
For the 2020-21 tax year, the Lifetime Allowance will increase from £1.055 million to £1.073 million.
The Lifetime Allowance is the maximum amount that individuals can save into a pension while still enjoying the full tax benefits.
The two tapered annual allowance thresholds (threshold and adjusted) have each been raised by £90,000 for the 2020-21 tax year.
This means that the“threshold income” will increase from £110,000 to £200,000, so individuals with income below £200,000 will not be affected by the tapered annual allowance. The annual allowance will only begin to taper down for individuals who also have an “adjusted income” above £240,000 (previously £150,000).
The annual allowance for pension contributions will still be £40,000 for 2020-21.