In the Budget speech on 15 March, the Chancellor announced some significant changes to pensions tax laws. This is a summary of the key changes relevant to members of the Abbott Laboratories Pension Fund (1966).
Annual Allowance (AA)
The standard AA increased on 6 April 2023 from £40,000 to £60,000. This allows a greater build-up of pension rights before you trigger an AA tax charge.
The Tapered Annual Allowance (TAA), which affects higher earners, also changed from 6 April 2023. The amount of adjusted income before the tapering applies increased from £240,000 to £260,000. The minimum TAA changed from £4,000 to £10,000. Many people will now have a bigger AA than they had before the change.
The Money Purchase Annual Allowance (MPAA) increased from 6 April 2023. It applies to members who have Additional Voluntary Contribution (AVC) payments made, or any other contributions into any Defined Contributions (DC) arrangement. Once any such DC benefits have been accessed flexibly using Freedom and Choice, the MPAA limits how much can then be saved on a DC basis before incurring a tax change. From 6 April 2023, the MPAA increased from £4,000 to £10,000.
Lifetime Allowance (LTA)
The LTA tax charge was removed from 6 April 2023. There is now no limit to how much total pension rights you can build up while avoiding an LTA tax charge.
Generally, the maximum tax-free cash lump sum at retirement will remain at the existing amount of £268,275 (25% of the previous LTA).
Some members have already applied for, and received, protections from previous reductions to the LTA, which enabled them to preserve a greater maximum level of cash lump sum. If you already have protection, it will not be taken away from you.
Process
The Bill bringing the changes into law has to make its way through Parliament. Although some MPs are unhappy with it, it is widely expected to be passed and to receive Royal Assent before Parliament adjourns for the summer.
The Labour Party has stated its intention to reverse the LTA changes if it comes to power at the next General Election.
Neither Abbott nor the Trustee can give tax-planning advice or any other kind of financial advice. We recommend that you discuss with your own financial adviser how the changes should affect your retirement planning.
If you do not already have a financial adviser, you may find the following link helpful Choosing a financial adviser.