In the March 2023 Spring Budget, the Chancellor of the Exchequer announced some changes to the tax allowance limits for pensions saving.
The maximum amount your pension can increase year-by-year as it builds up has increased, this is known as the Annual Allowance. The maximum pension you can build up over your entire working life before additional tax charges apply, known as the Lifetime Allowance, will effectively be abolished.
In summary, from 6 April 2023:
- The Annual Allowance (AA) will increase from £40,000 to £60,000.
- The Lifetime Allowance (LTA) charge which was previously set at £1,073,100 will effectively be abolished. Nobody will face an LTA charge from 6 April 2023 (although benefits will still be subject to income tax). The Chancellor announced pension savers will not have to pay penalty tax charges for going over the LTA in the 2023/24 tax year, and the LTA will be abolished altogether from April 2024 (subject to a new Finance Bill being passed).
- Changes will be made to AA tapering for high earners. The ‘adjusted income’ level for the tapered AA to apply will increase from £240,000 to £260,000. The standard AA is reduced by £1 for every £2 earned above these levels – down to a minimum of £10,000 (previously £4,000).
- The amount of tax-free cash you can take from your pension savings is known as the Pension Commencement Lump Sum (PCLS). This is normally restricted to 25% of your pension savings. Although not an issue for most people, the PCLS limit will be frozen at 25% of the current LTA level (which means it will be capped at £268,275) from April 2023. Anyone with a protected right to a higher PCLS is expected to retain this right.
- Individuals who had previously protected higher LTAs (or who had already begun the application process before 15 March 2023) will no longer be required to comply with protection conditions.
- The MPAA will be increased from £4,000 to £10,000 from April 2023. The MPAA applies to contributions to a Defined Contribution (DC) arrangement where a member has previously flexibly accessed any DC scheme savings.
You can find more information about the changes at: https://www.gov.uk/government/publications/spring-budget-2023
An overview of the changes
For more information on pensions tax allowance please click here