UK PENSIONS: WHAT THE SPRING BUDGET CHANGES MEAN FOR YOU

Added by Love Business East Midlands | 17 March 2023

The Chancellor has announced a raft of changes to pension savings as part of the UK government’s initiative to get people back into work or keep them working longer.

Revealing his first Spring Budget as chancellor, Jeremy Hunt’s statement confirmed the lifetime limit on tax-free pension savings will be removed, the annual pension allowance will be increased, and both the Money Purchase Annual Allowance (MPAA) and Minimum Tapered Annual Allowance (MTAA) will also rise.

Zoe Till, investment director and chartered financial planner at leading East Midlands law firm Nelsons, said:

“The announcements from the chancellor may provide scope for people to make additional pension contributions, although these should only be made if they are affordable and if access is not required until at least the normal minimum pension age.

“For those already using their pension to provide an income in retirement, the new rules may result in a lower tax liability. However, pensions do still provide other tax advantages, including an effective vehicle for inheritance tax planning, especially if other assets can be used to generate an income in retirement.

“Therefore, when considering the new announcements alongside the existing rules, it is always advisable to seek financial advice before making any changes.

“A financial adviser has the technical knowledge and expertise to consider all the options, the advantages, and any implications for your own specific personal situation.”

End of lifetime pension allowance

The most significant change to pensions came as a surprise to many, with most experts predicting the allowance would be increased to £1,800,000 – the limit has now been removed altogether.

First introduced in April 2006, the limit applies to all pensions and controls the total amount someone can save in their pension without having to pay additional tax costs. These costs are based on the total value of all the pensions a person has used in their lifetime and passed on after their death.

It is hoped that removing the limit will mean workers will now start to, restart, or increase their pension savings, assuming they can afford to.

The charge will be removed from 6 April 2023, but the limit on the Pension Commencement Lump Sum (PCLS) will remain at its current maximum of 25% of the current lifetime allowance rules, equivalent to £268,275, or 25% of the fund value if lower. However, those individuals who already have a protected right to take a higher PCLS will continue to be able to do so.

Annual Allowances (AA)

The AA is the maximum amount of pension savings an individual can make each year with tax relief, without incurring a tax charge, which aims to effectively recoup some of the tax relief given. The chancellor has now confirmed the annual tax-free pension allowance will rise from £40,000 to £60,000 from 6 April 2023.

The Budget estimated roughly 80% of NHS doctors will not receive a tax charge in respect of accruals as per the 2015 NHS career average scheme. The rules in relation to carrying forward unused annual allowances from the three previous tax years will remain the same.

In addition, the Money Purchase Annual Allowance (MPAA), a reduction to the AA for individuals who have flexibly accessed their money purchase pension savings, will rise from £4,000 to £10,000 from 6 April 2023.

This same increase also applies to the Tapered AA which is a reduction to the AA for individuals with income above set levels. The adjusted income threshold for the tapered AA will also rise from £240,000 to £260,000 as of next month.

To speak to a member of the Nelsons Investment Management team call 0800 024 1976 or fill in the online form. For more information on Nelsons, please visit www.nelsonslaw.co.uk

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