During the 2023 Spring Budget, the Chancellor announced changes to pensions, which may alter the way you save for retirement.
These changes will allow you to save more money and may provide a helpful tax planning opportunity, so it is important to make sure you make the most of them.
Why have changes been made?
The aim of the Spring Budget changes to pension is to motivate older individuals to remain in or re-enter the workforce and save more for future.
The Lifetime Allowance is the maximum amount of pension savings that an individual can accumulate over their lifetime, without tax.
The current limit of £1,073,100 was set to last until 2026, but the Chancellor announced that it will be removed completely. This change will come into effect from 6 April 2023, before the allowance is scrapped entirely next year.
Pension Annual Allowance
The Pension Annual Allowance refers to the maximum amount that an individual can contribute to their private pension each tax year without facing additional charges.
The current limit is £40,000, but this will be increased by 50 per cent to £60,000 from 6 April 2023.
Money Purchase Annual Allowance
The Money Purchase Annual Allowance is relevant for individuals who have begun to withdraw from their defined contribution pension, but who want to continue working and saving.
Currently, the allowance stands at £4,000 per year before incurring a tax penalty. However, the Chancellor has more than doubled this amount to £10,000, and this will be effective from 6 April 2023.
Tapered Annual Allowance
The Tapered Annual Allowance gradually decreases the amount that an individual can contribute to their pension plan each tax year, based on their earnings.
The allowance would not be reduced to below £4,000, but in the upcoming tax year, this lower limit will be raised to £10,000.
The adjusted income threshold for the Tapered Annual Allowance will also be increased from £240,000 to £260,000 from 6 April 2023.If you need help understanding what these changes to pensions will mean for you or how to make the most of this new opportunity, contact us for advice.