Spring Budget 2023

We thought it would be helpful to provide you with an update regarding the changes that have been announced in the Spring Budget 2023, if you have any queries please speak to a financial adviser. If you do not have a financial adviser we recommend that you take advice from an FCA regulated financial adviser to discuss your options. Please note that we are not authorised to provide financial or investment advice but we are happy to assist with technical issues.

Contribution Limits

The following changes have been confirmed:

• The Annual Allowance is the maximum amount of contributions (personal and employer) that can be made to registered pension schemes each year. The annual allowance is currently £40,000 and this will be increasing to £60,000 from 6th April 2023 – carry forward will still be available from the 3 previous tax years
• If you have taken a pension payment under flexi-access drawdown from a defined contribution pension scheme, the amount of contributions that you can make to these schemes is reduced from £40,000 to £4,000 per annum. From the 6th April 2023 the £4,000 limit is being increased to £10,000.
• The Tapered Annual Allowance was introduced on the 6th April 2016 and since April 2020 anyone with taxable income over £240,000 wishing to make contributions to registered pension schemes had their annual allowance reduced by £1 for every £2 of income they had over £240,000. This tapering stopped when an individual’s allowance reached £4,000 for contributions. The budget has confirmed that the Tapered Annual Allowance will be increasing from £4,000 to £10,000 from 6th April 2023.
• The adjusted income threshold for the Tapered Annual Allowance is also increasing from £240,000 to £260,000 from 6th April 2023.

Lifetime Allowance

There have been some significant changes announced in respect of the Lifetime Allowance which in turn has affected the level of Pension Commencement Lump Sum (Tax Free Cash) that is available to individuals:

• The Lifetime Allowance is the total amount of money that an individual can build up in their pension scheme(s) before a tax charge is applied. The Lifetime Allowance tax charge is being removed from the 6th April 2023 and the Lifetime Allowance will be totally abolished from the 2024/2025 tax year. This means that an individuals pension fund can build up to any level without any tax charges being applied.
• Although the Lifetime Allowance is being abolished the maximum tax free lump sum that an individual will be able to take from their pension funds will be frozen at £268,275 (25% of £1,073,100 the current Lifetime Allowance). Anyone with tax free cash protection or with valid Lifetime Allowance protection for example Enhanced Protection or Fixed Protection will still keep their entitlement to a higher tax free lump sum.
• Members with Enhanced Protection or Fixed Protection (applied for before 15th March 2023) will be able to accrue new pension benefits with effect from 6th April 2023 without losing their protection.

About this document

This update is based on our understanding of pension’s law and regulation.

Every care has been taken to ensure that it is correct. It is issued by DP Pensions Ltd for use by our pension clients and their advisers.

Please note that DP Pensions Ltd are not authorised to give financial advice. We do not know all of your circumstances or details of any other pension schemes of which you are a member. You should contact your financial adviser for help on how this legislation may affect you personally.

No responsibility to any third party is accepted if this information is used for any other purpose. The legislation and HMRC practice may change in the future.

If you have any queries regarding the information in this update and how it affects your circumstances then please contact your financial adviser.