In March, Chancellor Jeremy Hunt delivered his Spring Budget, which included the biggest shake-up in the taxation of pensions for over a decade. It was announced that the Lifetime Allowance is being abolished altogether and the Annual Allowance is being increased by 50%.
In simple terms, these changes will enable people to save more before they get hit with a tax charge.
The Lifetime Allowance is currently £1,073,100 and had been expected to stay at that level until April 2026. However, it was announced in the Spring Budget that it would be abolished.
This is scheduled to happen from 6 April 2024. In advance of this, the Lifetime Allowance tax charge was removed from 6 April 2023. The Annual Allowance limits the amount you can pay into your pensions in a tax year without having to pay an additional tax charge. It’s being increased from £40,000 to £60,000.
There’s a third limit, the Money Purchase Annual Allowance, which limits how much you can pay into your defined contribution pensions in a situation where you’ve already started taking some of the benefits from them. It’s going up from £4,000 to £10,000.
The Lifetime Allowance and Annual Allowance were only expected to be a factor for a minority of people. Most UK pension savers weren’t likely to hit the Lifetime Allowance and don’t typically use up their full Annual Allowance each year.
The changes are therefore good news for you if you’ve got substantial pension savings and you’re concerned that, in time, you could exceed the Lifetime Allowance.
The Lifetime and Annual Allowances may change in the future. You can find more information on the MoneyHelper website at moneyhelper.org.uk/en/pensions-and-retirement/tax-and-pensions
