In this year’s Budget, there were three key changes for people who are saving into a pension. They benefit those who haven’t yet taken an income from their pot and the other benefits those that have.
Increase in the annual allowance
The annual allowance is the amount you can save into your pension each year tax-free. The limit has been raised from £40,000 to £60,000. This includes contributions that are made by both you and your employer. So, if you’ve recently been given a pay increase, it’s a good idea to review your contributions as you may benefit from being able to save more tax-free.
Abolishing the lifetime allowance
There’s now no limit to the amount you can save into your pension pot over your lifetime. Previously the standard limit was £1,073,100. Any amount over this limit would have been taxed when you took the money. This charge has already been abolished, meaning no-one will be subject to the charge from April 2023.
Increase to the money purchase annual allowance (MPAA)
The MPAA is the amount you can pay into a pension once you’ve started taking an income from your retirement pot, and still receive tax relief on your contributions. It used to be £4,000 a year but has now been increased to £10,000. This could be beneficial if you decide to go back to work after retirement for example.
While the proposed increases are a positive development, they are still awaiting legal implementation and have faced resistance from the government’s opposition who perceive them as favouring the wealthy. These charges are expected to take effect in the tax year 2023/24.
That’s why at Murdoch, we’re cautiously optimistic, but advising clients to stick to the current regulations until the law is changed. There are many ways to maximise your tax arrangements, so please get in touch if you’d like to review your pension savings.