Spring Budget 2023 Update
The Spring budget grabbed our attention, especially for pension savers, and was more interesting than many. Previous budgets have had little fiscal wriggle room for the Chancellor and so it was tempting to expect a quiet budget.
This budget delivered significant changes for the pensions landscape – for those saving into their pensions as well as those taking monies out or planning to do so.
The big announcement was scrapping the Lifetime Allowance (LTA) which caught most by surprise. This removes the overall cap on pensions benefits that can be taken without triggering an additional tax charge.
This means that those who already have or will build up pension pots greater than £1,073,100 will no longer be liable to the Lifetime Allowance charge on the excess funds they take over this level.
This change will effectively take place at the start of the new tax year (2023/24) with the removing of the LTA charge. It will take a further year the LTA itself to disappear due to the slow-moving wheels of the legislative machine.
However, limits will remain on the amount you can take from your pension tax free. This is set at a maximum of 25% of the current LTA (£268,275) unless you have some form of tax-free cash protection in place already. The limits on tax free cash are set to be frozen at this level for the foreseeable future.
The increase of the Annual Allowance (AA) to £60,000 up from £40,000 was another measure aimed at senior NHS staff but with potential benefits for others. This boosts the amount that can be paid into a pension each tax year that will receive tax relief.
Certain pension savers have their Annual Allowance reduced, either by the Money Purchase Annual Allowance (MPAA) and the tapered annual allowance for high earners. Both of these remain in place but are restored to their previous minimum levels of £10,000, up from £4,000.