Several changes to pensions were announced during the Spring Budget earlier this year. Regarded as the most significant since pensions freedoms in 2015, the changes, expected to provide greater flexibility and opportunity, have largely had a positive reception. The overhaul is intended to make it more straightforward for individuals to accumulate a bigger pension pot and not be penalised by taxes.
The changes primarily impact high earners, those with generous company pensions and those planning to aggressively fund their pensions later in life. The government hopes that the changes will incentivise people in certain high demand, high earning professions such as NHS consultants to delay retirement.
What are the changes?
Some of the main changes took effect from 6 April 2023, and include:
- The Lifetime Allowance (LTA) charge was removed, with the LTA (currently £1,073,100) itself expected to be formally abolished (likely to be April 2024), allowing people to save more into their pension over their lifetime without facing tax charges for exceeding it
- The standard Annual Allowance (AA) increased from £40,000 to £60,000 (max 100% of earnings), allowing many individuals to pay more into their pension each tax year and receive tax relief on it. Individuals are still able to carry forward any unutilised allowance from the previous three tax years. Increasing the AA will particularly benefit workers approaching retirement who may have neglected pension saving in the past, who will be able to pay more into their pension each year and receive tax relief
- The ‘adjusted income’ threshold for Annual Allowance tapering increased from £240,000 to £260,000 and the minimum tapered Annual Allowance increased from £4,000 to £10,000 (meaning that individuals with annual adjusted income of £360,000 or more will have an Annual Allowance of £10,000). The tapered Annual Allowance is the reduced pension Annual Allowance that is applied to those who now have an ‘adjusted income’ over £260,000; for every £2 earned above the £260,000 threshold the normal Annual Allowance is reduced by £1
- The Money Purchase Annual Allowance (MPAA) increased from £4,000 per tax year to £10,000, to encourage those drawing a pension to continue working. This is the amount you can pay into your pension after you have accessed pension benefits, and still enjoy tax relief. The additional MPAA means anyone already using their pension but continuing to work, or looking to return to work, will be incentivised to do so as they can increase the size of their pension pot and receive tax relief.
Advice is key
Citrus Financial can help you understand the new pension changes and make the most suitable decisions for your individual circumstances. We can help you:
- Assess your current pension provision and identify any opportunities to improve it
- Develop a pension plan that meets your retirement goals and tax efficiency
- Implement your pension plan and provide ongoing support and advice.
If you are unsure how the new pension changes will affect you, or if you need help developing a pension plan, please contact us for a free initial consultation.
The value of pensions and investments can fall as well as rise. You may get back less than you invested.
Tax treatment varies according to individual circumstances and is subject to change.
Tax planning is not regulated by the financial conduct authority.
Approver Quilter Financial Services Limited & Quilter Mortgage Planning Limited. 15/10/2023
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