The Chancellor of the Exchequer presented his Spring Budget to Parliament on Wednesday 15 March 2023. Within the raft of measures announced was the surprise announcement that from 6 April 2023, the pension savings annual allowance would increase and the lifetime allowance charge on pensions would be removed entirely. The government’s reasoning for this was to persuade those currently considering retirement to remain in employment, and to encourage those who have already left the workforce to return to work in an attempt to reverse the economic inactivity that the UK has seen increase since the onset of the pandemic.
The pension annual allowance is the maximum amount of pensions savings an individual can make each year into registered pension schemes with tax relief without incurring a tax charge which effectively cancels out some of the tax relief given. It is currently set at £40,000 a year, but will increase from 6 April 2023 to £60,000 a year (and similarly there will be an increase in the income level where tapered annual allowances apply from £240,000 to £260,000 and in the tapered allowance). The lifetime allowance is the maximum amount of tax relievable pension savings an individual can benefit from over the course of their lifetime. Individuals may contribute to their pension over these limits, but they will currently be subject to a tax charge on the amount above the allowance. The excess is taxed either at 55% where taken as a lump sum, or at 25% where taken as pension. The current standard lifetime allowance is £1,073,100 but this cap will be removed from 6 April 2023.
Sarah Ingram, a partner in the Family team at Winckworth Sherwood has spoken to the Financial Times about how these changes may impact couples deciding now and in the future over whether to agree to a pension sharing order. Whilst it may not entice the highest earners back into investing more into their pensions, she considers that the policy change will be a positive step for older spouses with crystallised funds who have had to pay out, or are going to pay out. Under pension sharing orders. “It now offers them a better opportunity to replenish their pensions without the risk of exceeding the lifetime allowance”.
Read more in Financial Times.