What are the budget changes for pensions?

It’s great news for individuals who want to save for their retirement.  There has been a limit to the amount of pension savings you can make and still keep the tax benefits.  This is called the Lifetime Allowance (LTA).  The chancellor has announced the LTA will be scrapped. There were rumours before the budget that the allowance would be raised, potentially to £1.8m but it was a surprise that they were completely scrapped.

What is the LTA?

The LTA is a cap on the amount which someone can put into their individual pension and get the tax benefits associated with a pension. The LTA had been set at £1,073,100 limit and until the budget was due to be fixed until 2026.  This applies to private pensions, but does not include the state pension. Jeremy Hunt announced the additional tax charge that was levied on pensions savings above the LTA will be withdrawn from 6 April 2023.  The LTA will then be fully eliminated from April 2024.

What about the annual allowance?

The annual allowance (AA) is the cap on pension contributions that an individual can pay into their pensions each year and receive tax relief.  The AA has currently been set at £40,000. The chancellor has boosted this to £60,000 from 6 April. There is also something called the Money Purchase Annual Allowance (MPAA), which is also being increased.  This is the limit you can pay into a pension, and get tax relief if you have already taken some benefits from a money purchase pension. The MPAA cap is currently £4,000 a year, but the chancellor is greatly increasing this to £10,000 from 6 April.

What does it mean for savers?

Pensions have been considering a great savings vehicle for retirement due to the tax advantages.  This change has cemented that position and extended it, meaning we can really focus on creating the kind of retirements we all dream of.

Levels and bases of, and reliefs from taxation are subject to change and their value depends on the individual circumstances of the investor. Your pension income could also be affected by the interest rates at the time you take your benefits. The tax implications of pension withdrawals will be based on your individual circumstances, tax legislation and regulation which are subject to change in the future. This guide is for information purposes and does not constitute financial advice, which should be based on your individual circumstances.