Chancellor of the Exchequer Jeremy Hunt presented his Spring Budget on March 15 2023. The major pension-related headlines were changes to the amount of tax-free savings members can make each year (the ‘Annual Allowance’) and over their lifetime (the ‘Lifetime Allowance’).

The changes to the Annual and Lifetime Allowances will predominantly affect those with high earnings and high levels of pension savings, although more details are still to be published. We will update you in future on anything new that may be revealed.

Here are the pensions highlights from the Spring Budget: 

• The Lifetime Allowance (LTA) will be abolished
• The Annual Allowance will increase from £40,000 to £60,000
• The threshold for those affected by the Tapered Annual Allowance will increase from £240,000 to £260,000
• The Money Purchase Annual Allowance will increase from £4,000 to £10,000
  
• The most you will be able to take as a tax-free lump sum will be £268,275 (unless you have Lifetime Allowance protections)

The Lifetime Allowance (LTA) will be abolished

The Lifetime Allowance is a limit on the amount of tax-free pension savings a person can make during their lifetime. The Lifetime Allowance limit has been held at £1,073,100 in recent years. Any savings over that amount would be taxed.

However, the Chancellor revealed that Lifetime Allowance charges will no longer apply from 6 April 2023 and a future Finance Bill will remove the Lifetime Allowance from pension tax legislation altogether from April 2024.

This, in theory, means you can pay as much as you want into your pension during your lifetime tax-free. However, the Annual Allowance still restricts the amount you can pay in tax-free each year, as do the Scheme Rules. You can check the rules that apply to you in your Member Guide when you log into your myFund account.

The Annual Allowance will increase from £40,000 to £60,000

The Annual Allowance is a limit on the amount of tax-free pension savings a person can make each tax year. The Annual Allowance limit has been £40,000 since the 2014-15 tax year.

From 6 April 2023, the Annual Allowance limit will increase to £60,000, allowing you to pay more into your pension each tax year without paying tax on it. You can also carry over any unused allowance from the previous three years.

The threshold for those affected by the Tapered Annual Allowance will increase from £240,000 to £260,000

The Tapered Annual Allowance is a limit on the amount of tax-free pension savings that affects high earners.

It reduces the Annual Allowance limit if an individual’s annual taxable income is more than a certain amount when added to the increase in value to their pension savings (their ‘Pension Input Amount’). This amount is known as their ‘adjusted income’. The Tapered Annual Allowance currently affects those with an adjusted income of £240,000 but from 6 April 2023, it will only affect those with an adjusted income of £260,000.

The lowest their Annual Allowance can be tapered down to will be £10,000 from 6 April 2023, instead of £4,000.

The Money Purchase Annual Allowance will increase from £4,000 to £10,000

The Money Purchase Annual Allowance is a limit on the amount of tax-free pension savings you can make into a defined contribution (DC) pension arrangement. It would only affect you if you take savings from a defined contribution arrangement (which includes Additional Voluntary Contributions) in certain ways. You can find an explanation of of which ways of taking your benefits affect this at Gov.uk and in our Read as You Need guide.

The Money Purchase Annual Allowance limit is £4,000 for the 2022-23 tax year and will increase to £10,000 from 6 April 2023.

The most you will be able to take as a tax-free lump sum will be £268,275 (unless you have Lifetime Allowance protections)

Most pension savers are currently able to take up to 25% of the overall value of their pension benefits as a tax-free lump sum when their take their benefits.

As the Lifetime Allowance will be abolished, the Chancellor has set a cap, so the most you will be able to take as a tax-free cash lump sum will be £268,275. If you take an amount over the cap, it will be charged tax at your marginal rate of income tax.

This will come into effect for any lump sums that are due to be paid on or after 6 April 2023.

Read the full Policy Paper on Pension Tax Limits or visit the GOV.uk site for more information on current pension tax limits.

We will be updating our website content and guides over the coming months to reflect the changes announced as part of the Spring Budget 2023, so please refer to this news article in the meantime for the 2023-24 tax year figures.