Pension taxation changes from 6 April 2023

24.03.2023

During the Spring Budget announcement last week, the Government announced a number of changes to pension taxation which are explained further below.

Pension taxation changes announced to take effect from 6 April 2023

  • The Government confirmed that the additional tax charge on any lifetime pension savings above a set amount, known as the Lifetime Allowance (LTA), will no longer apply from 6 April 2023. The current LTA is £1.0731 million but it is expected that this will be abolished with effect from 6 April 2024.
  • The value of pension benefits that can be saved tax-efficiently each year, known as the Annual Allowance (AA), will increase from £40,000 to £60,000 from 6 April 2023. There will also be increases to the Money Purchase Annual Allowance (MPAA) and the Tapered Annual Allowance (TAA) from £4,000 to £10,000 each year.

Although the changes introduced in the Budget will apply to everyone only a very small number of people are likely to be affected by them. You are only likely to be affected if you meet one or more of the following conditions.

  • You have opted-out of the ABF Pension Scheme for taxation reasons and/or you have a form of HMRC pension protection.
  • Your ABF pension savings are close to or above the current LTA of £1.0731 million.
  • Your pension contributions to the ABF Pension Scheme are capped for taxation reasons.
  • You have received a pensions savings statement from Group Pensions in previous tax years because your pension savings have exceeded the AA or you are subject to the MPAA.

If your ability to save tax-efficiently into the ABF Pension Scheme is currently limited by either the LTA or the AA, the changes may provide you with the opportunity to start or increase regular pension savings. However, the Government’s announcement was unexpected and we are currently waiting for more detail from HMRC. Please bear with us whilst we work to understand the detail behind these pension taxation changes. We will then send out a communication to you if you are affected to explain the options available to you.

If your pension contributions to the ABF Pension Scheme are capped then the existing cap will remain in place for now. You will be given the opportunity to change your level of pension contributions when we write to you again.  

You can find out more information about LTA and AA on the ABF Pension Scheme website here (for DC Members) or here (for DB Members). The website also contains examples and further information about how the Tapered Annual Allowance and the Money Purchase Annual Allowance work.

Please note the Group Pensions Department is not allowed to give you advice about your personal tax position. We strongly recommend that you seek advice from a financial adviser before making any decisions about your pension if you believe you are affected by the tax relief limitations on your pensions savings. You can find information on financial advisers by visiting www.unbiased.co.uk

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