Steven Cameron, Pensions Director at Aegon has given his 5 key pension takeaways for advisers following the Chancellor’s Spring Budget.
He said: “From a pensions perspective, Jeremy Hunt’s Budget certainly didn’t disappoint and his shock abolition of the Lifetime Allowance was classic ‘rabbit from the hat’ material. But it was only one of five key pension points in the Budget that advisers will want to be ready to discuss with clients.
- The Lifetime Allowance
“The lifetime allowance is being completely abolished. This is officially from April 2024, but for the 2023/24 tax year, any lump sums currently subject to the 55% lifetime allowance tax charge will instead be taxed at an individual’s marginal rate of income tax. This means anyone planning to retire before 6 April 2023 who currently faces a lifetime allowance charge should consider deferring retirement until after 6 April. We need to await details from HMRC on how the transition will work.”
- Tax free cash
“While there will in future be no maximum on how much individuals can build up in their pension, there will remain a limit on tax free cash. This will be 25% of whatever an individual’s lifetime allowance was before these changes come into effect. For someone without protection this will be 25% of £1,073,100 or £268,275. Those with protection will retain the right to 25% of their protected amount. It looks likely that this will be frozen thereafter which means a gradual erosion in real terms. However, the good news is no-one will face a retrospective cut.”
- Annual Allowance
“The annual allowance is being increased from £40,000 to £60,000 and the three year carry forward rules are being kept. This will be good news particularly for those accruing substantial additional benefits within a defined benefit scheme.”
- Tapered Annual Allowance
“It might have been a little much to expect the Chancellor to have scrapped the Tapered Annual Allowance. However, it has been tweaked a little to reflect other changes. The adjusted income threshold has been increased from £240,000 to £260,000. This will slow down the impact of the taper, with it falling to £10,000 once adjusted income exceeds £360,000.”
- Money Purchase Annual Allowance
“The change which might actually benefit most people is the increase in the MPAA from £4,000 to £10,000. This will make it far less likely that someone over 55 who has accessed their DC pension flexibly and then wants to continue contributing will be affected. This is particularly important for those who may return to the workforce who might otherwise not have been able to take full advantage of an employer’s pension contribution.”