As announced in the Spring Budget, the Spring Finance Bill 2023 will include the following provisions in relation to pensions:
• The annual allowance (AA) for tax-relievable pension contributions will increase from £40,000 to £60,000 from 6 April 2023.
• The money purchase annual allowance for tax relievable pension contributions, applicable to those who have accessed their benefits ‘flexibly’ since 6 April 2015, will increase from £4,000 to £10,000 from 6 April 2023. ‘Flexibly’, in this context, includes drawing income from a flexi-access drawdown arrangement; drawing more than the annual maximum income from a capped drawdown arrangement; or receiving an uncrystallised funds pension lump sum.
• The tapered annual allowance, under which the annual allowance is reduced below £40,000 for those with ‘adjusted income’ in excess of £240,000, will apply only to those with adjusted income in excess of £260,000, in any tax year from 6 April 2023.
• The lifetime allowance charge, applicable to benefits exceeding a pension scheme member’s available lifetime allowance (LTA), will cease to apply from 6 April 2023.
• The maximum tax-free lump sum (known formally as ‘pension commencement lump sum’, PCLS) will continue to be linked to the LTA. The maximum PCLS for those without one of the available forms of LTA protection will remain at £268,275, i.e. 25% of the 2022/23 LTA of £1,073,100.
• A pension scheme member who intended to rely on LTA protection, in order to draw PCLS in excess of the £268,275 cap, should still be able to do so, subject to conditions.
• The tax rate applicable to certain lump sums, where they exceed the amount for which the available LTA would have provided, will be reduced from 55% to the beneficiary’s marginal rate of income tax, from 6 April 2023.
It has also been announced that the LTA will itself be abolished, from 6 April 2024, under a measure to be introduced in a future Finance Bill.
If you’d like to discuss how this new tax legislation affects your pension arrangements , please get in touch on 0116 326 0183.
