In its Spring Budget 2023, the Government announced a number of changes to the pensions tax system from 6 April 2023. They include changes to the Lifetime Allowance (LTA) and the Annual Allowance (AA).
Summary of the changes from 6 April 2023
- The intention is that the LTA will be abolished from the 2024/2025 tax year, through a future Finance Bill. In the meantime, the LTA tax charge in respect of benefits in excess of the LTA will not apply from 6 April 2023 but, as the LTA framework will remain in place, the Trustee will continue to operate the usual LTA checks and you should continue to provide LTA information if requested.
- The maximum tax-free cash lump sum an individual can take is usually 25% of the value of their pension benefits at retirement. From 6 April 2023, this will be frozen at its current level of £268,275, (which is 25% of the standard current LTA), although those with protected rights to a higher amount of tax-free cash (including LTA protections like enhanced, primary or fixed protection) will retain that entitlement.
- Individuals with enhanced or fixed protections will be able to accrue new pension benefits from 6 April 2023 without losing that protection.
- The standard AA will increase from £40,000 to £60,000.
- The tapered AA (the mechanism by which the standard AA is reduced for higher earners) will now apply to individuals with an ‘adjusted income’ over £260,000 (previously this was £240,000) and the minimum tapered AA will increase from £4,000 to £10,000.
- The Money Purchase AA (which applies to any subsequent Defined Contribution (DC) savings made by individuals who have previously accessed their DC benefits flexibly, for example through drawdown) will increase from £4,000 to £10,000.
Did you know?
The LTA is the maximum amount of pension savings an individual can build up over a lifetime without tax charges applying. The AA is the maximum amount of pension savings an individual can build up in a single year without tax charges applying.
Need help?
If you have any questions, please contact the DHL Pensions Department on 0161 425 7370.
Please note this is just a summary of what has been announced. You can find more detailed information on the Government website.
HMRC has also provided some information in its latest newsletter which can be found here.
The Trustee is not able to provide financial or tax advice. Therefore, it is strongly recommended that you take advice from an authorised independent financial adviser to make sure that any decision is the right one for you at the present time. You should also remain alert to further changes and developments in this area. This summary is information only and should not be read as advice.
