Changes outlined by Jeremy Hunt to Pensions in his budget on Wednesday 15 March 2023


This is not an advice document but an outline of the changes announced by Jeremy Hunt to Pensions in his budget on Wednesday 15 March 2023


Key Facts

Current Situation

  • Lifetime Allowance (LTA) is £1,073,100 frozen until April 2028 (previously 2026) by Jeremy Hunt in his first budget in November 2022.
  • Tax relief on Personal Pension contributions is at highest marginal rate of income tax, with basic rate granted at source.
  • Maximum tax relievable Pension contribution is £40,000 (gross) per tax year but must have earnings of at least this to support payment.
  • Tapered Annual Allowance for reduced Pension contributions start at annual earnings of £240,000 and once £312,000 or higher the maximum Pension contribution reduces to £4,000 (gross).
  • Benefit Crystallisation Event (BCE) calculation could happen on death, taking benefits or at age 75, whereon an assessment by the pension company will be made on whether an LTA charge could be payable. The charge would be either 25% if benefits above LTA taken as income or 55% if taken as a lump sum.
  • There are various levels of Protection (Fixed, Primary & Enhanced) that could have been secured to obtain an LTA above current level.
  • Carry Forward – the ability to maximise current tax year contribution first and then go back three previous tax years to make pension contribution that must not exceed earnings in the current tax year (i.e. £40,000 for 2022/23 then £40,000 for 3 previous tax years = £160,000 in total).
  • Money Purchase Pension Allowance (MPPA) capped at £4,000 (gross) tax relievable contribution for those people who want to also take income from a Defined Contribution Pension.
  • Defined Contribution Pensions can be Inheritance Tax Exempt.

Jeremy Hunt Budget on 15.03.23 for pension changes from 06.04.23

  • LTA scrapped from April 2024 and LTA charges abolished from April 2023, and therefore no BCE analysis points.
  • Maximum contribution increased to £60,000 (gross) per tax year.
  • Tax relief on Personal Pension contributions maintained.
  • Carry Forward also maintained, but the numbers have changed so maximum now £180,000 (£60,000 23/24, and £40,000 for 3 previous tax years).
  • Tax Free Cash is capped at 25% of £1,073,100 (£268,275) OR 25% of Protection secured (e.g., if Fixed Protection 2014 of £1.5 million, the tax-free cash maximum figure will be £375,000). Therefore there are no LTA charges, just income tax to be paid at highest marginal rate of tax.
  • Tapered Annual Allowance now starts at £260,000 and still reduces on a £2 for £1 basis above this band, with a new maximum Pension contribution of £10,000 (gross) for those that earn £360,000 a year or more.
  • MPPA increased to £10,000 (gross) contribution.
  • Inheritance Tax rules are unchanged on Defined Contribution Pension Plans.

Caveat – On 16 March 2023 Labour stated that if they were in power, they would reverse the Hunt pension changes.

Mogers Drewett

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