Spring Budget 2023: The key pension announcements and what they mean

Craig Hendry

Craig Hendry

Managing Director & Chartered Financial Planner

Three key changes around pensions were announced in Jeremy Hunt's Spring Statement on 15 March 2023. Below, we explain the changes and what these mean for your pension.

The three main changes announced were:

  • Pension Lifetime Allowance tax charge will be removed from April 2023 and abolished in 2024
  • Pension Annual Allowance increased from £40,000 to £60,000 from April 2023
  • Tapered Annual Allowance increased from £4,000 to £10,000 from April 2023 with the Adjusted Income threshold being increased from £240,000 to £260,000

What is Chancellor Jeremy Hunt’s ultimate goal with the changes to pension legislation? Encouraging early retirees back into the workforce would appear to be the most obvious, with many high earners (particularly Doctors) having retired early on account of their pension savings being too close to the previous Lifetime and Annual Allowance maximums.

Over the last few years this has led to these individuals managing a difficult balance between working hours, pension contributions, and often heavy tax bills that have followed from breaching the limits.   

Increasing the thresholds may entice these higher earners back to the workplace at a cost of an expected £2 billion to the taxpayer. Although the level of monies that can be contributed annually has been increased by 50%, as the Annual Allowance has been increased, the Tapered Annual Allowance has also been increased from £4,000 to £10,000 from April 2023, with the Adjusted Income threshold being increased alongside up to £260,000. This will mean that more workers will remain below the levels where tapering occurs and those that are impacted will have an additional £6,000 available.

The most surprising pensions legislation change is the commitment to remove the Lifetime Allowance charge from April 2023 and fully abolish the Lifetime Allowance by 2024. This allows for much higher pension contributions over the lifetime of an individual’s career and will not see investment growth punished. Additionally, those that have previously been unable to make further contributions on account of various pension Lifetime Allowance Protections might now be able to make further contributions.  

Although the Lifetime Allowance is due to be abolished, within the fine print of the Budget it is noted that the maximum tax-free element of your pension has been frozen at 25% up to a maximum of £268,275, in line with the previous Lifetime Allowance (for those without prior Lifetime Allowance protection).

These changes, the Chancellor hopes, will bring a lot of individuals out of retirement and/or back to full- rather than part-time working, now that there is the ability to shelter some of these earnings from the additional rate of income tax without getting penalised by a tax charge ultimately on their pension pot.  Not only will there be a tax benefit for those returning to work and restarting their pension contributions, but also for those in existing employment, as they will be able to add greater sums over their career.

Get in touch

Read the rest of our Spring Budget analysis on our Budget Hub, and for more information or to discuss any of the announcements, please don't hesitate to get in touch with me or your usual Johnston Carmichael Wealth contact.

Johnston Carmichael Wealth Limited is authorised and regulated by the Financial Conduct Authority.

All statements concerning the tax treatment of products and their benefits are based upon our understanding of current tax law and HMRC practices.  Legislation and the levels and basis of reliefs from taxation are subject to change and are dependent on your individual circumstances.

This communication is based on our understanding of tax legislation as at 15/03/2023 and proposed changes announced in the Budget on 15 March 2023. The value or benefit of any specific tax reliefs or allowances will depend upon your own situation.

The Financial Conduct Authority does not regulate tax and estate planning.

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