The State Pension rose by 10.1% from April 2023, regardless of whether you are eligible for the new Single Tier (flat rate) State Pension which was introduced in April 2016, or the older basic State Pension.
From April 2023, those qualifying for a full Single Tier State Pension will receive £203.85 a week (up from £185.15) but for those who are on the older basic State Pension, will now receive £156.20 (up from £141.85). If you have not yet reached the state pension age you can check your State Pension forecast on GOV.UK.
How have private pension allowances changed?
Annual allowance change
The pension annual allowance is the total you can save into your pensions in a tax year without incurring an additional tax charge. The total you can save includes all contributions including your own contributions, employer contributions and or from any other third party. In 2022/23 it was the lower of £40,000 or your earnings. But from 6 April 2023 the maximum has increased to £60,000. However, if you are a high earner or if you have accessed your pension savings, your annual allowance may be less.
Tapered annual allowance change
If you are a higher earner then you might be impacted by a lower annual allowance which is called the tapered annual allowance. Depending on your income, the amount you can save tax free gradually reduces. From 2023/24 the minimum allowance has increased from £4,000 to £10,000. The income threshold at which the Annual Allowance is restricted for high-income individuals has increased from £240,000 to £260,000 from 6 April 2023. This includes not only salary, but it is important to note also employer pension contributions are taken into account along with pension income, interest, dividends and most other sources of income. This is a complex area so please speak to us for advice if you think this affects you.
Money purchase annual allowance change
This may apply to you if you have entered drawdown or have cashed in your pension savings. Usually your annual allowance in these circumstances will be a lower amount, which is known as the money purchase annual allowance. This has increased from £4,000 to £10,000 from 06 April 2023. Some people may have drawn funds from their pension pots either during the pandemic or to fund the increased cost of living which might mean they have the lower money purchase annual allowance.
Lifetime allowance change
The lifetime allowance is the total amount you can accumulate in all your pension savings without facing a tax liability when you access your pension pot. Before 05 April 2023, If your pension savings were worth more than the lifetime allowance, you would have incurred a 55% tax charge on anything drawn as a lump sum over the allowance, which was called the ‘excess’. There will be no lifetime allowance tax charge from 6 April 2023 although the maximum tax free lump will still be based on 25% of the standard lifetime allowance which is £1,073,100 in 2023/24, so the maximum tax free cash will remain at £268,275.
We always recommend you take appropriate professional advice in relation to pension savings.