Master pension changes to secure your future
The Spring budget had significant implications for pensions. Here is a handy summary of those pension changes.
Pension Lifetime Allowance abolished
The Lifetime Allowance, was the amount of money (capped at £1,073,100) you could pay into pensions before facing a tax charge. This was abolished to incentivise people to work longer.
You can take up to 25% of your pension as a tax-free lump sum. However, the Chancellor announced that the tax-free element from pensions will be capped at £268,275 (25% of the 2022-23 Lifetime allowance), the remaining pension funds will be subject to income tax when drawn.
Annual pension allowance increased from £40,000 to £60,000
The Annual Allowance is the amount you can pay into a pension annually while benefiting from tax relief. From 6 April 2023 it rose from £40,000 to £60,000. This means that for every £80 you pay into a personal pension the UK government adds another £20. At present, individuals will still be able to carry forward any unused allowance from the previous three tax years.
The Annual Allowance includes your own personal contributions as well as contributions from your employer, if you’re employed. Higher and additional rate taxpayers can claim back further tax relief through Self-Assessment.
Minimum Tapered Annual Allowance from £4,000 to £10,000
High earners are limited to the level of pension contributions they can make. When an individual has adjusted income of £240,000 and above, their annual pension allowance is tapered.
The minimum tapered annual allowance of £4,000 will increase to £10,000. While the adjusted income threshold for calculating this allowance jumps from £240,000 to £260,000 per annum.
Money Purchase Annual Allowance (MPAA) raised from £4,000 to £10,000
To encourage older workers to remain in work the MPAA increased from £4,000 to £10,000.
The MPAA is triggered if a worker, aged above 55, has already drawn more than the 25% tax-free lump sum from their defined contribution pension pot and continues to pay into a pension scheme. The MPAA restricts the amount you can pay into a defined contribution pension while benefiting from tax relief.
Download your free Tax Tables guide at www. ammu.uk/new-2023-24-tax-tables
Ammu Chartered Accountants
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