The Budget scrapped the lifetime allowance for pension savings. But there were also further changes in the fine print for you to be aware of. What are the key points?
Allowances
The lifetime allowance (LA) is a limit on the size a pension pot can grow to. If savings exceed the LA when the pension is accessed, a charge of up to 55% applies. The government feels that this has been a contributory factor in NHS doctors retiring early, and so from 2023/24 the LA will be scrapped completely.
Pro advice. The maximum tax-free lump sum will remain at 25% of the £1.073 million LA level for now, i.e. £268,275.
Pro advice. A larger lump sum may be available if clients have previously elected for protections to apply.
The annual allowance (AA), which restricts the amount of “tax relieved” contributions that can be made each year, is increased to £60,000.
Pro advice. If the AA is not utilised, the unused amount can be carried forward for up to three years.
Tapering
Whilst not mentioned in the Budget speech, the overview of tax legislation and rates (see Follow up) confirms that the adjusted income threshold before tapering of the AA applies has also increased by £20,000, i.e. to £260,000. The minimum tapered AA has also been increased to £10,000.
Money purchase
A lower allowance also applies to individuals that have already accessed pension savings in most circumstances. Known as the money purchase annual allowance (MPAA), it was a meagre £4,000. The MPAA has also been increased to £10,000 from 2023/24. This will be beneficial to those who want to return to work following retirement and make further pension contributions.
Pro advice. Remember that if the MPAA has been triggered, any unused AA from before the trigger date cannot be carried forward to increase it.
The pension annual allowance has been increased to £60,000. The tapering adjusted income threshold has also increased, as well as the minimum allowance and money purchase annual allowance – both to £10,000.
Follow up
Overview of tax legislation and rates
This article has been reproduced by kind permission of Indicator – FL Memo Ltd. For details of their tax-saving products please visit www.indicator-flm.co.uk or call 01233 653500.