What does the Spring Budget mean for your pension?
March 21, 2023On Wednesday 15th March, Chancellor Jeremy Hunt delivered his Spring Budget, which included the biggest shake-up in the taxation of pensions for over a decade. The Lifetime Allowance is being abolished altogether and the Annual Allowance is being increased by 50%.
In simple terms, these changes will enable people to save more before they get hit with a tax charge.
What are the Lifetime and Annual Allowance?
The Lifetime Allowance sets the total value of all the pension savings you can build up before having to pay extra tax. It currently stands at £1.073 million and had been expected to stay at that level until 2026, but from April 2023 it’ll be a thing of the past.
The Annual Allowance limits the amount you can pay into your pensions in a tax year without having to pay an additional tax charge. It’s being increased from £40,000 to £60,000.
Sounds good…but will it affect you?
The changes are good news for you if you’ve got substantial pension savings and you’re concerned that, in time, you could exceed the Lifetime Allowance. You now no longer need to worry that you may have to pay that additional tax charge when you retire.
There’s also good news if you’re looking to boost your pension savings, either by increasing how much you regularly save or by making any large one-off payments into your pension, perhaps because your income is inconsistent, or you’ve come into some money from a dividend or inheritance. The increased Annual Allowance will enable you to put more into your pension without a tax penalty.
The changes aren’t such good news for high earners who’ve recently retired. If you were over the Lifetime Allowance and therefore paid an additional tax bill, you can’t “un-retire” to claim your money back.
What about the State Pension?
Every year the State Pension is reviewed to take account of inflation, and new figures are announced. From April 2023, payments will be:
- £203.85 a week (up from £185.15) for the full, new flat-rate State Pension (for those who reached State Pension age after April 2016)
- £156.20 a week (up from £141.85) for the full, old Basic State Pension (for those who reached State Pension age before April 2016)
As ever, if you’re making decisions about your financial future, we recommend getting independent help and advice. MoneyHelper is an excellent place to start. It can also help you to find an authorised independent financial adviser (IFA) in your area.