As part of his Budget on 15th March, Chancellor Jeremy Hunt announced the following significant changes to the amounts individuals may save into their pensions.
The highest amount of pension savings a person can make annually without experiencing a tax penalty is known as the Annual Allowance.
- Starting in April 2023, there will be an increase in the Annual Allowance from £40,000 to £60,000.
Tapered Annual Allowance
While the majority of people have the right to receive the complete yearly allocation, those with earnings exceeding specific thresholds are subject to limitations on their allowance.
- Starting in April 2023, the threshold for the tapered AA to take effect will rise from £240,000 to £260,000. Additionally, the minimum Tapered Annual Allowance will increase from £4,000 to £10,000.
Money Purchase Annual Allowance
The MPAA can be applicable when an individual withdraws funds from a defined contribution pension account, which may result in a reduction of the allowable contribution amount to their pension.
- Starting in April 2023, the MPAA will rise from £4,000 to £10,000.
The LTA refers to the highest possible amount of pension savings that an individual can receive tax relief on throughout their life. While people can save more than this limit in their pension, they will be required to pay a tax fee on any amount that exceeds the allowance.
- The Chancellor made a very important statement that the LTA will be eliminated starting April 2023.
Additional information regarding the measure and the Government’s proposal to impose limitations on the tax-exempt lump sum an individual can receive has not been disclosed. At present, when someone becomes eligible for pension benefits, they can usually utilize the pension commencement lump sum (PCLS), which is currently 25% of their available LTA. The Government will establish a maximum monetary limit of £268,275 (equivalent to 25% of the current LTA) for the PCLS. If you possess LTA protection, you might be able to receive a larger PCLS.
To learn more about the UK chancellor announcement in the Spring Budget. Please click here.