In the Spring Budget 2023, the Chancellor announced a number of pension tax changes. Here is a summary of the key changes:

Annual Allowance

The pension annual allowance is the maximum amount of pension savings an individual can make each year with tax relief. The annual allowance is currently reduced for individuals with threshold income of over £200,000 and adjusted income of over £240,000. The minimum reduced annual allowance in the current tax year 2022/23 is £4,000. Moving forward into the 2023/24 tax year, the following changes have been made.

  • The standard annual allowance will increase from £40,000 to £60,000. Carry forward of unused annual allowance from the three previous tax years will still be available
  • The minimum tapered annual allowance will increase from £4,000 to £10,000
  • The adjusted income threshold for the tapered annual allowance will be increased from £240,000 to £260,000. The threshold income remains at the present level at £200,000

 

  • The money purchase annual allowance, which replaces the annual allowance for individuals who have flexibly accessed their money purchase pension savings, will also be increased from £4,000 to £10,000

 Lifetime Allowance

The Lifetime Allowance (LTA) is the maximum amount of tax relievable pension savings an individual can benefit from over the course of their lifetime. The LTA is currently £1,073,100.

  • The LTA tax charge will be removed from April 2023. Benefits will still be tested against the LTA during the 2023/24 tax year, but the charge on any excess will be 0%
  • The LTA will be abolished entirely in the 2024/25 tax year, through a future Finance Bill

 

 

 

 

 

Pension Commencement Lump Sum

The pension commencement lump sum (PCLS) known as tax-free cash is the amount of money available ‘tax free’ to an individual as a lump sum when taking pension benefits.

  • The maximum amount which a member can take as a PCLS will be frozen at £268,275 which is 25% of the current standard lifetime allowance of £1,073,100
  • Members with a protected right to a higher PCLS, either through transitional protection or scheme-specific enhancements, will continue to be able to access this right

These changes will take effect from 6 April 2023, unless otherwise stated.

Please contact MacIntosh James & Partners should you have any queries or wish to discuss the above in further detail.