Pension contributions receive tax relief up to certain amounts. People are allowed to save up to £40,000 into a pension but high earners could face an entirely different system.
Pension schemes will only get tax relief if they are registered with HMRC and the government advise people to check with their providers if they’re unsure.
The thresholds for tax relief however will be raised from tomorrow.
As the new tax year starts, the threshold at which the allowance will start to taper rises to £240,000.
On top of this, the lifetime pension allowance is also rising to £1,073,100.
To check on how much of a lifetime allowance has been used, people can contact their providers for information.
For people with more than one pension scheme they must add up what they’ve used in all the schemes they belong to.
It is possible to go above a lifetime allowance and if this is the case, the pension provider(s) will send a statement which details how much tax is owed.
The rates of tax paid on pension savings above the lifetime allowance is dependent on how the money is paid out. The rate will be 55 percent if the person gets a lump sum or 25 percent for any other methods.
The changes made to tapered annual allowance rules were partly done to support doctors. Doctors in the NHS were unhappy with how the system operated, feeling they were penalised financially. With more doctors needed for coronavirus, Rishi Sunak laid out the changes in the hopes of reducing fears.
His 2020 budget speech unveiled the plans: “I’ve listened to concerns, from all sides of this House, that the pensions tax system is preventing Doctors from taking on more hours.
“To significantly reduce the number of people that the tapered annual allowance affects I’m increasing both taper thresholds by £90,000, removing anyone with income below £200,000.
“Based on their vital work for the NHS, that will take around 98% of consultants and 96% of GPs out of the taper altogether.”