UK Government – Spring Budget 2023 – Changes to Pension Contribution rules

In the UK Government Spring Budget 2023, the Chancellor announced a series of changes to the Pension Contribution rules with the aim of encouraging older workers to work for longer or return to work:-

• Lifetime Allowance for Pensions

The Lifetime Allowance for pensions, the maximum amount of tax-relieved pension savings an individual can have, will be removed in April 2023 before being completely abolished with effect from April 2024.

However, the maximum tax-free element of your pension has been frozen at 25%, up to a maximum of £268,275, of the previous Lifetime Allowance of £1,073,100 (for those without prior Lifetime Allowance protection).

• Pension Annual Allowance

The pension annual allowance will increase to £60,000 from 6 April 2023 from the current level of £40,000. This is the maximum that you can pay into pensions in a single tax year and receive tax relief on.

The adjusted income threshold for the Tapered Annual Allowance will also be increased from £240,000 to £260,000 from 6 April 2023

The minimum Tapered Annual Allowance will be increased from £4,000 to £10,000 from 6 April 2023.

Individuals will continue to be able to carry forward unused Pension Annual Allowances from the 3 previous tax years.

• Money Purchase Annual Allowance

The Money Purchase annual allowance will be increased from £4,000 to £10,000 from 6 April 2023.

Once someone flexibly accesses their defined contribution pension savings, the total tax-relieved pension savings they can make each year is restricted to the level of the Money Purchase Annual Allowance. This change is designed to support those who have left the labour market to return and supplement their income or build up their retirement savings.

• Enhanced midlife MOT

 The UK Government will provide an enhanced digital midlife MOT offer and expand the Job Centre Plus midlife MOT offer which provides in person financial planning and awareness sessions for Universal Credit claimants aged over 50.

The information in this blog provides only an overview of HMRC guidance and legislation in force at the date of publication and no action should be taken without consulting the detailed HMRC guidance and legislation or seeking professional advice.  Therefore no responsibility for loss occasioned by any person acting or refraining from action as a result of the material contained in this blog can be accepted by the firm.

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