The Chancellor of the Exchequer, Jeremy Hunt, announced significant changes to the personal tax code for pensions.
The Changes taking place from April 6th, 2023:
Annual Allowance (AA) – will rise from £40,000 to £60,000 annually.
Money Purchase Annual Allowance (MPAA) and Tapers Annual Allowance (TAA) will rise from £4,000 to £10,000 per year.
Lifetime Allowance (LTA). LTA will be completely abolished in a future finance Bill.
Pensions Commencement Lump Sum (PCLS). The maximum PCLS for individuals without protections will remain at 25% of the current LTA (£268,275) and will then be frozen.
What are the effects of the changes on individuals?
In its most recent Pension Schemes Newsletter, HMRC clarified the situation, stating that participants with active enhanced or fixed safeguards will be able to accrue new benefits, join other programmes, or move without losing such protections if the application was made by 15 March 2023. Members who have a protected right to a higher PCLS will continue to have that privilege. Despite this, there are still a lot of unanswered concerns, especially around what a Labour government might accomplish.
What are the effects of the changes on employers and trustees?
While the announcements of the Chancellor’s reforms will be welcome news for some, the unanswered questions will leave many wary. Pensions is a long-term financial planning tool, so individuals need reliable and consistent rules in order to plan effectively. Ultimately, the devil will be in the detail. Some (but not all) of that will be introduced in future Finance Bills, and (relative) certainty may not be achieved until after the next general election.