Changes announced at the Spring 2023 budget have been confirmed and have now been put into law through Royal Assent. This shift signals an opportunity to review your pension contributions and boost your retirement pot where suitable.
Three changes to pension rules that could affect your retirement plans
1. Annual contribution limits have increased
The annual allowance has risen from £40,000 to £60,000 from the 2023/24 tax year onwards, which means you may be able to save even more each year into your pension. This 50% increase is particularly welcome news for higher and additional rate taxpayers.
Although the allowance is reduced for very high earners, the point at which the tapering starts has increased to an ‘adjusted income’ of £260,000, with the minimum tapered annual allowance also increasing from £4,000 to £10,000. Working out your adjusted income and whether you’re in a position to take advantage of this change is complex and so it’s important to check the figures with your accountant and financial planner before you make any contributions, so you remain within the rules.
2. The lifetime allowance will be abolished
It was a surprise to many of us that the pension lifetime allowance (LTA) will be abolished from 6 April 2024, where previously it was £1.073 million. As a result, there are no LTA tax charges applicable from this tax year onwards regardless of how much you save into your pension. However, the 25% tax-free lump sum you can take when you reach 55 has been capped at £268,275 for most people.
The rules are more complicated if you’ve protected your pension savings from previous reductions in the standard lifetime allowance over the past 10 years. You may now have more flexible options for contributing and withdrawing money, as well as potentially being able to take a higher tax-free lump sum than other savers, which we can help you explore.
3. Contribution changes if you’ve started to draw an income from your pension
The money purchase annual allowance (MPAA) has risen to £10,000 from £4,000. This figure is the maximum amount you can save into your pension each year if you’ve already started to flexibly draw an income from it. If you’ve started to take pension income but are not yet fully retired or are considering returning to work this could be a welcome opportunity to help boost your pension savings further.
Get in touch
For most people, a pension can be the most tax-efficient way to save for retirement. These latest changes mean it could now make even more financial sense to review the current plans for your pension.
However, the rules and regulations around the various limits and thresholds are complex, which is why it’s always a good idea to seek professional advice. We’ll also help you consider pensions as part of your wider financial planning needs, including ways to pass on your wealth tax efficiently.
Please get in touch to find out what you can do to maximise your pension savings.
Important information. The tax treatment depends on the individual circumstances of each client and may be subject to change in future.