Page 16 - Budget Newsletter 2021

• The Government has confirmed that from 6 April 2028 the normal minimum age at which you can draw benefits
from a private pension will rise from 55 to 57. It will be a step change with no phasing in – bad news if you were
born on 6 April 1973.

• In the Spring Budget the lifetime allowance was frozen at £1,073,100 until 6 April 2026. By coincidence, that date
will mark the 20th anniversary of the lifetime allowance introduction – at a level of £1,500,000.

PLANNING POINT

The carry forward rules allow unused annual allowances to be carried forward for a maximum of three tax
years. Thus, 5 April 2022 will be your last opportunity to rescue unused allowance of up to £40,000 from
2018/19.

Tax relief for low-earners’ pension contributions

The Chancellor announced changes to the operation of pension tax relief for low earners who use the Net Pay
Arrangement, effective from 2024/25. The amendments will ensure that low-earners using the Net Pay system receive
the equivalent of 20% tax relief on their pension contributions, even if they are non-taxpayers.

Salary Sacrifice

From 2022/23, NICs can amount to 28.3% of gross pay – up to 15.05% for the employer and up to 13.25% for the
employee. The corollary is that avoiding NICs can save up to 28.3% of pay. A widely applied example of turning NICs to
an advantage is in the use of salary sacrifice to pay pension contributions. Instead of making personal contributions
out of your net pay, you accept a lower salary and your employer makes a pension contribution. If the employer
passes on all the NIC saving, the pension contribution could be up to almost 38% higher, as the example shows.

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