In the 2023 budget, the Chancellor announced plans to make the following changes to pension tax allowances.
The Annual Allowance
The Annual Allowance is the maximum amount of money you can save in pension benefits each year without incurring a tax charge. This amount has remained at £40,000 since 6 April 2016.
The Chancellor announced this cap would be rising from £40,000 to £60,000 from 6 April 2023.
The Tapered Annual Allowance
The Tapered Annual Allowance is the point at which the Annual Allowance is reduced for high-income individuals whose threshold income is above £200,000. If you are impacted by this, the government has more information at www.gov.uk/guidance/pension-schemes-work-out-your-tapered-annual-allowance.
Money Purchase Annual Allowance
When you start drawing money from a defined contribution pension, the amount you can pay into any defined contribution pensions without paying a tax charge is limited by the Money Purchase Annual Allowance.
The Money Purchase Annual Allowance increased from £4,000 to £10,000 from 6 April 2023.
The Lifetime Allowance
The Lifetime Allowance is the maximum amount an individual can take from all their registered pension schemes without incurring additional tax charges. This does not include the State Pension. The Lifetime Allowance for the 2022/23 tax year was £1,073,100.
The budget removed these additional tax charges for amounts exceeding the Lifetime Allowance for the 2023/24 tax year, and the Lifetime Allowance is due to be abolished completely from 6 April 2024.
Cash at retirement
When you start drawing money from your pension account you can choose to receive a tax-free lump sum payment of up to 25% of your pension or Lifetime Allowance (whichever is lower). The maximum amount you can claim tax free is currently £268,275.
The maximum amount will be frozen at £268,275, even though the Lifetime Allowance is being removed. If you have existing protections from the Lifetime Allowance and were entitled to a higher tax-free lump sum on 5 April 2023 you will continue to be entitled to this higher sum.
For more information on pensions legislation and taxation, take a look at the pensions page of the government website www.gov.uk/browse/working/workplace-personal-pensions
If you’re not sure how these changes will affect you or want more information about the budget, the government’s MoneyHelper website has a useful article and contact details for further help. www.moneyhelper.org.uk/en/blog/everyday-money/what-the-2023-spring-budget-means-for-you
If you’d like advice on your pension savings, the MoneyHelper website also has a section on financial advice here www.moneyhelper.org.uk/choosing-a-financial-adviser