In the UK’s spring budget on 16th March, the government announced several changes to pensions that will affect millions of workers and retirees including members of SSASs. The changes are aimed at providing greater flexibility and security to pensioners, while also helping to stimulate economic growth and get more people back to work.
The key changes announced were:
- The lifetime allowance will be removed entirely
- The annual allowance will increase from £40,000 to £60,000
- The money purchase annual allowance will increase from £4,000 to £10,000
- The adjusted income limit will increase from £240,000 to £260,000
- The minimum tapered annual allowance will also increase from £4,000 to £10,000
How have pension allowances changed?
The lifetime allowance is the maximum amount of money that an individual can save in a pension over their lifetime without incurring tax penalties. It is currently set at £1,073,100 and it was originally planned to stay capped at this until 2026. However, it will now be removed entirely from 6th April 2023 and will be fully abolished from the 2024 tax year. The lifetime allowance framework will remain in place from 6 April 2023, and it is just the lifetime allowance charge that has been removed at this stage.
Pension Commencement Lump Sum
The maximum amount which a member can take as PCLS will be frozen at £268,275. Members with a protected right to a higher PCLS will still be able to access this higher amount.
The annual allowance is the total amount you can save into your pension plans before incurring an additional tax charge. This was originally set at £40,000 or your total earnings, whichever is lower. This will now increase to a maximum of £60,000 in April 2023.
Tapered annual allowance
Higher earners may have been impacted by this which gradually reduced the amount you can save into your pension each tax year depending on your earnings. The lower limit of £4,000 will increase to £10,000 in the new tax year.
Money purchase annual allowance
If you access any taxable money from your pension plan – either through a drawdown arrangement or from cashing in your pension savings – then you may see your annual allowance reduce. The amount you can save into your plan will usually reduce from £40,000 to £4,000. This is known as the money purchase annual allowance. From April, it has been announced that this will go up from £4,000 to £10,000.
If you have any questions about these changes to your allowances please contact us.
Please note: We are not authorised to give advice under the Financial Services and Markets Act 2000, or any other kind of taxation or professional advice. For advice, speak with or consult your Financial adviser.