Pension allowance changes from 6 April 2023

In this year’s Spring Budget, the Chancellor announced significant changes to pension allowance limits which means you can save more towards your retirement, before facing any extra tax charges.

Here’s a summary of what these changes might mean for you and your pension.

No more Lifetime Allowance (LTA)

The big news is that there’s no longer a cap on how much you can save tax-efficiently for retirement. The LTA, which was how much you could build up in pension benefits before paying a tax charge will be removed. This means, from 6 April 2023, no one needs to pay LTA tax charges, although the LTA will not be officially abolished until at least 6 April 2024.

The maximum you can take as tax-free cash (usually 25% of the value of your benefits), will be capped at £268,275 (25% of the LTA for the last tax year) unless you have LTA protections (see below). Other benefits that are taxed at 55% if you go over the LTA (like some death benefits) will now be taxed at your marginal rate.

What changes if you have LTA protection

If you’d previously protected your pension from future falls in the LTA (by fixing it at a higher historic value), you may still be able to take a tax-free cash lump sum when you retire based on 25% of your fixed LTA rate. This would be a higher amount than the new cap.

With certain LTA protections, you were unable to add to your pension without losing your protected LTA. From 6 April 2023, you will also be able start building up your pension benefits again, without being at risk of losing your protection, and will keep your entitlement to a higher tax-free cash amount (also called a pension commencement lump sum).

A rise in the Annual Allowance (AA)

The AA, which limits how much you can save tax-efficiently each year, is rising for the first time in several years. The AA varies depending on how much you earn and if you’ve already started taking your savings:

• For most people, the AA increases from £40,000 to £60,000 a year from 6 April 2023.
• For higher earners, your AA may be reduced, or tapered from this standard limit as your income rises. But the lowest that this tapered AA could fall to will now be £10,000 (up from £4,000 in the last tax year). The tapered AA also won’t start to kick in until you’ve reached a slightly higher adjusted income of £260,000 (compared to £240,000 last tax year).
• If you’ve started taking any of your money purchase pension savings, the Money Purchase AA (MPAA) will apply instead. This limit is rising from £4,000 to £10,000 from 6 April 2023.

Please note, these changes will be officially implemented only once the Finance Bill has been passed by Parliament.

Next steps to consider

• Review your retirement options

  It’s worth considering when you’d want to retire and whether you wish to save more in your APeCs, given there’s no longer a tax limit on your Lifetime Allowance.

  Log into your pension record to review your APeCs and explore your retirement options.

• Get financial advice

  To help you consider your tax position in light of these changes, we recommend you get financial advice. Use MoneyHelper's directory to find an FCA-registered adviser.

  If you’re over age 52, you can speak to Liverpool Victoria Financial Advice Service Limited who may be able to provide advice at preferential rates arranged with the Trustee.

If you have any worries about your Fund benefits, please get in touch.