Chancellor Jeremy Hunt made some significant changes to pension rules in his 2023 Spring Budget.
He is scrapping the lifetime allowance – the limit on how much someone can generally put aside in pension savings before they have to pay a lifetime allowance charge. The current limit, £1,073,100, was set to be in place until 2026, but the allowance will be fully abolished from April 2024.
Mr Hunt also extended the annual pension allowance – the most someone can pay into a pension in any given tax year without a penalty. It’s set to go up by 50%, to £60,000 from £40,000. However, high earners will have their allowance tapered down, depending on how much they earn, to a minimum of £10,000. As always, it’s worth seeking independent tax advice to understand your position.
The changes are primarily designed to encourage older doctors with defined benefit pension schemes to stay in or return to work, as they may otherwise incur lifetime allowance charges. The Chancellor told MPs during his Budget speech that “no one should be pushed out of the workforce for tax reasons”.
The maximum, non-protected amount you can take out of your pension tax free when you reach minimum pension age as a one-off lump sum remains 25%, but it will now be capped at £268,275.
Irene Wolstenholme, tax specialist at Coutts, explains that the lifting of the lifetime pension allowance could have positive implications for inheritance tax planning.
She says, “If you pass away before you draw your pension, under certain conditions it can pass to your dependents without incurring inheritance tax. So the government lifting the limit on how much you can put into your pension without paying additional tax could be an efficient way to pass your money on to your loved ones.”
But she adds, “The detail around the legislation needed for these changes is not yet clear, and will still be debated within Parliament. Also, if you die after 75, there may be income tax consequences for your beneficiaries to consider, who would normally be taxed at their marginal rate of tax.”