In his Spring Budget on 15 March, Chancellor Jeremy Hunt announced significant changes to pensions.
Lifetime Allowance
The Lifetime Allowance charge for pensions, which applies when a pension pot is worth over £1.073m will, from 6 April 2023, be removed and will be fully abolished from April 2024.
Limitless Top Ups
Individuals will be able to top up their pensions to any value which they choose – subject to the annual allowance below – and suffer no significant tax charges, which previously existed if the Lifetime Allowance was breached.
Pension Commencement Lump Sum
However, the maximum Pension Commencement Lump Sum for those without protections will be retained at £268,275 (which is 25% of the current Lifetime Allowance) and will be frozen thereafter.
The pension commencement lump sum is the amount of lump sum which can be taken from a pension tax-free.
Investing in your Pension
This is a welcome removal of the current barriers which exist regarding the Lifetime Allowance for business owners and individuals, who may have maximised their pension pots and were considering other investments.
Further investment into a pension can benefit from other taxation savings given the favourable tax treatment on death, but full advice should be taken from a regulated individual.
Increase in the Annual Allowance
In addition, the Annual Allowance, which is the amount of income which can be invested into a pension every year without incurring a tax charge, will increase from £40,000 to £60,000 from 6 April 2023.
Currently, this allowance is tapered down to a minimum of £4,000 per year for higher earners; the taper begins if an individual’s adjusted income is over £240,000. From 6 April 2023 the tapered allowance will be increased to a minimum of £10,000 per annum and the taper will not apply until the individual’s adjusted income is above £260,000. This again gives business owners and individuals greater flexibility in terms of where they invest their money for their retirement.
Help and Support
If you require further guidance on the matters raised in this article please contact us who will be pleased to advise further.
This article should not be construed as a personalised recommendation. No action should be taken without seeking further formal advice.
MHA Moore and Smalley is regulated by the Financial Conduct Authority, FCA registration number 448716.
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