Annual Allowance

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Annual Allowance – an update

In our recent post, we gave our thoughts on the abolishment of the Lifetime Allowance, a change contained within the recent ‘Back to Work’ Spring Budget.

It is worth bearing in mind that the Lifetime Allowance of £1,073,100 would only be an issue if a member of a pension plan accumulates significant pension benefits although one caveat here is that the pay out from a registered group life assurance scheme, commonly a multiple of salary, would also count towards this limit as this type of scheme is registered with HMRC and falls under pension rules. Therefore the Lifetime Allowance potentially impacts more people than many would think prior to 6th April 2023.

The other important change to pension limits contained within the Budget, and one which is likely to be more impactful to pension savers, is the change to the Annual Allowance which sets a limit on the tax-relievable pension contributions that can be saved into a pension plan each tax-year.

In a nutshell the changes to take effect from 6th April 2023 are as follows:

· The standard Annual Allowance rises by 50%, from £40,000 to £60,000. Carry forward of unused Annual Allowance from the previous three tax-years is still an option providing the individual in question was a member of a registered pension scheme in those previous tax-years;
· High earners with ‘adjusted’ income in excess of £260,000 per annum will have their Annual Allowance tapered to no lower than £10,000. This compares favourably with the position before 6th April 2023, as currently the tapering applies to those with adjusted income in excess of £240,000 and the tapered annual allowance is as low as £4,000;
· Finally, those who have already taken their pension benefits may be subject to the Money Purchase Annual Allowance. This limit will rise from £4,000 to £10,000.

Whilst these changes are positive and welcome as they mean that individuals can save more into their pension without suffering a tax charge, careful planning is required. As always, the devil is in the detail!

Cartlidge Morland can provide guidance and advice to both private individuals and members of a workplace pension scheme to help optimise pension planning. Please contact us at enquiries@cartlidgemorland.com or on 020 7709 5560 for an initial chat.