What does this mean for you?

The 2023/24 tax year brings a set of new pension rules, which the industry has called a multibillion-pound tax giveaway. There have been major changes to crucial pension allowances. The Annual Allowance, the Money Purchase Annual Allowance and the Tapered Annual Allowance have all risen. There have also been some tweaks to the Lifetime Allowance rules.

Who could benefit from the pension changes, and how?

These changes could be game-changing for high earners, those with large pension pots, anyone who’s already retired and looking to build their savings back up, and everyone keen to limit their inheritance tax bill.

If you want to take advantage of the new rules, you should consider paying into your pension. But don’t forget there are certain limits to be aware of, and as always, there are lots of caveats and exceptions.

Pension Annual Allowance Changes

On April 6, 2023, the annual allowance was raised from £40,000 to £60,000. This is the maximum an individual can contribute to a pension each year while still obtaining tax relief (including any contributions from an employer), provided they have adequate wages.

For anyone wanting to significantly boost their pension, especially those who may have made limited contributions in the past, the increase is excellent news. The allowance has been set at £40,000 for a number of years, which means you could contribute £32,000 to your pension and receive an additional £8,000 in tax relief from the government. Now you are able to pay up to £48,000 into your pension and receive £12,000 in tax relief from the government on top. Higher and additional rate taxpayers can claim back up to a further £15,000.

The tapering annual allowance may cause your yearly allowance to be reduced if you make a high income.

Lifetime Allowance Changes

The lifetime allowance was the total amount that could be built up in your pension without paying a tax charge. However, since 6th April 2023, the tax charge no longer applies.

The standard lifetime allowance will continue to be measured and is still set at £1,073,100. It will be completely eliminated starting on April 6, 2024. It currently sets a cap on the overall maximum tax-free amount you can typically withdraw from your pensions starting at age 55. The cap is set at £268,275.

Tapered Annual Allowance Changes

Previously, your annual allowance would have been reduced by £1 for every £2 of adjusted income over £240,000. If you had an adjusted income of £312,000 or more your annual income allowance would have been reduced to £4,000.

From 6th April 2023, your annual income allowance will reduce by £1 for every £2 of adjusted income over £240,000. If you have an adjusted income of £360,000 or more, your annual allowance will be reduced to £10,000.

This change ensures that the tapered yearly allowance will initially have a smaller impact on high earners. Additionally, people who are affected might contribute more to all of their pensions each tax year.

Money Purchase Annual Allowance (MPAA) Changes

The MPAA was first introduced in 2015. And since 2017, anyone who has flexibly accessed a pension was only able to make future payments to their money-buy pension of up to £4,000 per year tax-free.

The MPAA increased to £10,000 on April 6, 2023. Anyone wishing to increase their pension after taking it out will profit from this. Now that you can contribute up to £8,000, the government will also add 20% in pension tax relief. You can even get an additional 25% refund if you pay tax at a higher rate.

How To Pay Into A Pension

If you are employed, chances are you have a workplace pension that you pay into each year. It’s worth checking with your employer whether they’d match any increased contribution you might make before giving them a new instruction. If your employer is already paying the maximum into your workplace pension, or you work for yourself, you might want to open a private pension, which you’ll have more control over.

Ruth Dolphin, Independent Financial Adviser, Runcorn, Widnes, Warrington, Chester, Frodsham, Liverpool, Wirral

Ruth Dolphin

Principal Independent Financial Adviser

Tel – 01928 761001

Email – ruth@dolphinfinancialltd.co.uk

The value of your investments and income they produce can fall as well as rise. You may get back less than you invested. Tax treatment varies according to individual circumstances and is subject to change.