The abolition of the pensions Lifetime Allowance, (LTA) was announced in the Spring 2023 Budget, to encourage people to save more into their pension schemes.
Chancellor Jeremy Hunt abolished the allowance, which is the limit on how much people can build up in their pension pots over their lifetime while still benefiting from key tax incentives. The previous threshold was £1,073,100 and anything over that was subject to a tax charge of up to 55 per cent.
The Government had argued that the LTA change was necessary because too many highly paid professionals, including NHS consultants and GPs take early retirement, and there have been predictions that more and more older public and private sector employees would change their behaviour or retire early to avoid being hit by the tax charge.
The Chancellor also increased the Annual Allowance (AA), which is the total amount that can be paid into your pension plans each year, before you have to pay additional tax charges, from £40,000 to £60,000. He has also increased the Money Purchase Annual Allowance (MPAA) and Tapered Annual Allowance (TAA) from £4,000 to £10,000, and the Adjusted Income for TAA from £240,000 to £260,000.
Previously, if you accessed any taxable money from your pension plan you would see your Annual Allowance reduce from £40,000 to £4,000.
The Chancellor has increased this to £10,000, which might be useful for anyone who has dipped into their pension to help top up their income during the pandemic or while living costs are high.
The TAA applies where an individual has a threshold income of £200,000 and adjusted income of £240,000.
Where the TAA applies, an individual’s AA is reduced by 50p for every £1 over the adjusted income threshold, down to the minimum level. The minimum level has now been increased to £10,000.
As the definitions of threshold income and adjusted income are complex, professional advice should be sought where an individual has total income exceeding £200,000 to ensure that pension contribution limits are not exceeded.
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