The UK Spring Budget on Wednesday March 15th 2023 saw Chancellor Jeremy Hunt making large scale reforms to the UK pension regime.
During the Chancellor’s 2023 Spring Budget, he announced that the Lifetime Allowance (LTA) is to be scrapped altogether and that the Annual Allowance (AA) would rise from £40,000 up to £60,000.
Currently the LTA stands at £1.073m with any pension savings above this amount being subject to charges of 55% on excess benefits taken as a lump sum and 25% for excess benefits being taken as income.
Reports that there were fears of high earners (doctors specifically being listed) retiring early (in their 50s) due to the freezes on the LTA and AA are understood to be the key driver behind this momentous move.
Furthermore, the Spring Budget saw both the Money Purchase Annual Allowance (MPAA) and Minimum Tapered Annual Allowance (MTAA) set to increase from £4,000 to £10,000.
In essence, both the MPAA and MTAA are limits to how much individuals can place into their pension per year. For the MPAA, this is once the individual has flexibly started taking benefits out of their pension. The MTAA is relevant for high earners earning past a certain threshold to the extent that their allowable contributions are tapered down as far as the rules allow.
There is much to be excited about here for people at all stages of their pension journey.
The increase in the AA is a big win for those focusing on accumulating significant amounts in their years prior to retirement, whilst the increase in the MPAA is certainly welcome to those who may wish to have some flexible access to pensions, yet still have many years to invest and have their funds grow e.g. semi-retired individuals.
Given that UK pensions are not subject to Inheritance Tax (IHT), this budget opens up significant estate planning opportunities for High Net Worth Individuals in the UK.
The changes listed will be implemented in April 2023.
If you have any questions, don't hesitate to contact us.
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