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What does the Spring Budget mean for your pension?

19 Apr 2023

On Wednesday 15th March, Chancellor of the Exchequer Jeremy Hunt presented his Spring Budget, which included changes to the taxation of pensions. The Lifetime Allowance is being abolished altogether and the Annual Allowance is being increased.

Here are the pensions highlights from the Spring Budget, which have been introduced from 6 April 2023:

  • The Annual Allowance will increase from £40,000 to £60,000
  • The threshold for those affected by the Tapered Annual Allowance will increase from £240,000 to £260,000
  • The Money Purchase Annual Allowance will increase from £4,000 to £10,000
  • The Lifetime Allowance (LTA) will be abolished
  • The most you will be able to take as a tax-free lump sum will be £268,275 (unless you have Lifetime Allowance protections)

Annual Allowance 

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The chancellor announced that the Annual Allowance (AA), the amount you can pay into pension savings across all pension arrangements without having to pay an additional tax charge, will increase from £40,000 to £60,000
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In addition, the Money Purchase Annual Allowance (MPAA), the limit on defined contribution (DC) pension savings you can make after accessing your pension pot ‘flexibly’, will increase from £4,000 to £10,000 a year.
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Finally, the minimum amount of Tapered Annual Allowance (TAA) (which applies to high earners) will increase from £4,000 to £10,000. The Annual Allowance will begin to taper down from £60,000 to £10,000 for members who have an Adjusted Income between £260,000 and £360,000.

Lifetime Allowance (LTA)

The Lifetime Allowance is the amount of tax-free pension savings a person can make during their lifetime before having to pay extra tax. The Lifetime Allowance limit has been held at £1,073,100 in recent years. Any savings over that amount would be taxed.

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However, from 6 April 2023 the Lifetime Allowance charges will no longer apply and a future Finance Bill will remove the Lifetime Allowance from pension tax legislation altogether from April 2024.

Tax free lump sums

Most pension savers are currently able to take up to 25% of the overall value of their pension savings as a tax-free lump sum when their take their pension.

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As the Lifetime Allowance will be abolished, the Chancellor has set a cap, so the most you will be able to take as a tax-free cash lump sum will be £268,275. If you take an amount over the cap, it will be charged tax at your marginal rate of income tax. This will come into effect for any lump sums that are due to be paid on or after 6 April 2023.

If you think you will be affected by any of these changes, you may wish to speak to an Independent Financial Adviser to help you review your pension savings and any tax charge due. It is your responsibility to keep track of your pension benefits and pay any tax charge due as a result of exceeding any HMRC allowances.                                        

For more information visit the Government’s website: www.gov.uk/tax-on-your-private-pension/annual-allowance