A number of changes to pension allowances and contributions came into effect on 6 April 2023. These changes are designed to make it easier for people to save for their retirement, while also ensuring that the system is fair for everyone.
The Lifetime Allowance and Lifetime Allowance Charge
One of the most significant changes is the abolition of the lifetime allowance and the lifetime allowance charge. The lifetime allowance is the total amount that an individual can accumulate in UK-registered pension schemes and relevant overseas pension schemes without incurring certain tax charges.
The lifetime allowance was set at £1,073,100 in 2020/21, but it was abolished from 6 April 2023. This means that there will be no limit on the amount of money that people can save in their pension pots.
Where the lifetime allowance had been exceeded, this would have been subject to a charge of 25%, or 55% of any amount taken of that excess taken as a lump sum, however, this will no longer apply.
Another key change is the increase in the annual allowance. The annual allowance is the maximum amount that an individual can save in a pension scheme in a single tax year without incurring an annual allowance charge. The annual allowance for 2022/23 is £40,000, but this increased to £60,000 from 6 April 2023.
At the same time, the annual allowance restriction threshold for high-income individuals also increases from £240,000 to £260,000. This means that people with adjusted incomes over £260,000 will see their annual allowance reduced by £1 for every £2 that their adjusted income exceeds £260,000.
The minimum tapered annual allowance also increased from £4,000 to £10,000, therefore anyone with adjusted income greater than £320,000 will still be able to receive 100% tax relief on pension contributions up to £10,000 per annum.
The government has also announced a number of changes to the rules on pension contributions. From 6 April 2023, employers will be able to make tax-deductible contributions of up to 13.8% of an employee’s salary into a pension scheme. This is an increase from the current level of 12%.
These changes are likely to have a significant impact on people’s pension planning. For example, people who were previously close to their lifetime allowance may now be able to save more for their retirement. However, people with high incomes may see their annual allowance reduced, so they will need to be careful about how much they contribute to their pension.
If you are unsure how these changes will affect you, please get in touch as a specialist in the team will be happy to advise you further on this matter.
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