The 2023 Spring Budget brought forth several changes to pensions that are expected to significantly affect retirement savings. The changes are aimed at motivating older individuals to stay in or rejoin the workforce and save more for their future. These changes present a tax planning opportunity for individuals who want to save more money for their pensions. It is essential to understand how these changes will impact your pension savings since they took effect on 6th April 2023.
Elimination of Lifetime Allowance
The Lifetime Allowance refers to the maximum amount of pension savings an individual can accumulate over their lifetime without incurring any tax. The £1,073,100 limit, scheduled to remain until 2026, has been entirely removed. The change took effect on 6th April, a year before the allowance was supposed to be removed entirely. There is no limit to how much you can save in your pension over your lifetime.
Increase in Pension Annual Allowance
The Pension Annual Allowance is the maximum amount that individuals can contribute to their private pensions each tax year without incurring additional charges. The limit has been increased by 50%, from £40,000 to £60,000, from 6th April 2023. This means that you can save more money in your pension each year without worrying about additional charges.
Money Purchase Annual Allowance Increase
The Money Purchase Annual Allowance is relevant to individuals who have started withdrawing from their defined contribution pension but wish to continue working and saving. The current limit is £4,000 per year before incurring a tax penalty. From 6th April 2023, the limit has more than doubled to £10,000 per year. This means that individuals who want to continue working and saving while withdrawing from their pensions can save more money each year.
Increase in Tapered Annual Allowance
The Tapered Annual Allowance gradually decreases the amount an individual can contribute to their pension plan each tax year based on their earnings. Although the allowance would not be reduced below £4,000, the lower limit has been raised to £10,000 in the next tax year. Additionally, the adjusted income threshold for the Tapered Annual Allowance has been raised from £240,000 to £260,000 from 6th April 2023.
Speak to AIT Accountants About These Pension Changes
If you need guidance on navigating these changes to your pension savings or want to discuss your retirement planning, AIT Accountants can help. Get in touch today and take the first step towards securing your financial future.