15 March 2023 – In the Spring Budget 2023, Chancellor Jeremy Hunt unveiled two big changes for pensions.
The first was raising the Annual Allowance from £40,000 to £60,000 from 6 April 2023. Individuals will continue to be able to carry forward unused Annual Allowances from the three previous tax years.
The second was the removal of the charge on the Lifetime Allowance from 6 April 2023 before the Lifetime Allowance is abolished entirely from 6 April 2024.
Tax free cash (also known as a pension commencement lump sum – PCLS) will be capped at 25% of the current lifetime allowance except where protections apply. It will be £268,275.
A further change was also announced: once an individual flexibly accesses their defined contribution pension savings, the total tax-relieved pension savings they can make each year is restricted to the level of the Money Purchase Annual Allowance.
To support those who have left the labour market to return and supplement their income, or build up their retirement savings, the government will also increase the Money Purchase Annual Allowance from £4,000 to £10,000 from 6 April 2023.
Commenting on the pensions changes announced in today’s Budget, Darius McDermott, managing director of Chelsea Financial Services, said:
“The increase in Annual Allowance and abolition of the Lifetime Allowance will be of benefit not just for those people lucky enough to have larger sums of money to invest but also for many civil servants. Doctors, teachers, nurses, police, fire fighters – anyone on a big final salary scheme will be better off.
“Many of those having to fund their own retirement will not be in a position to squirrel large amounts of money away and therefore are unlikely to feel the benefit of the increased Annual Allowance. However, the Budget has brought pensions back into focus and the changes are a clear signal that pensions are safe under the current government and that long-term saving is being encouraged.
“This is a very positive and much needed message to give a population which desperately needs to save more for its own retirement.
“These changes also simplify the pension rules, and the removal of the lifetime allowance means that those who diligently invest into their pension over the long term will no longer be penalised.”
While there were big changes for pensions, other savings tax reliefs were frozen.
The starting rate for savings will be frozen at £5,000, enabling individuals with less than £17,570 in employment income to receive up to £5,000 of savings income free of tax.
Annual subscription limits for Junior Individual Savings Accounts (ISA) will remain at £9,000 and the annual subscription limit for adult ISAs will remain at £20,000.
You can read the full report here.