The Chancellor announced big changes to the lifetime allowance and annual allowance in the 2023 Spring Budget earlier this month.
Chancellor Jeremy Hunt said he will abolish the lifetime allowance and increase the annual allowance from £40,000 to £60,000. Both changes are expected to take effect from 6 April 2023.
The Chancellor said he has made the changes to encourage ‘older people back into work’.
The lifetime allowance for most people in the 2022-2023 tax year is £1,073,100. It is the maximum amount of pension benefits that HMRC allows you to receive without paying extra tax. Annual allowance is the maximum amount of pension savings that HMRC allows you to build up in any one tax year without paying tax.
Please note, even though the lifetime allowance cap has ended, there will still be a tax-free lump sum limit of £268,275. So, the changes don’t mean tax on pensions has been completely removed.
What does this mean for me and my pension?
If you currently contribute to a Local Government, Police or Firefighters’ pension scheme, the end of the lifetime allowance should give you more room to grow your pension.
Meanwhile, the increase of the annual allowance should give you a higher threshold to build up your pension for the 2023-2024 tax year.
Please be aware
The changes to lifetime allowance should only affect you if you’re retiring after 6 April 2023.
Useful links
If you’re looking to make adjustments to your pension or retirement plans, as a result of the changes, you may find these links helpful.
