Pension Savings

Higher Annual Allowance and Abolition of Lifetime Allowance Charge

Saving for a pension can be tax-efficient as you are able to benefit from tax relief on contributions to registered pensions schemes up to certain limits. The limits have been relaxed.

The annual allowance restricts tax relieved pension savings to the amount of the available annual allowance for the tax year. Individuals are also limited by their earnings and can make tax-relieved contributions up to 100% of their earnings or, if higher, £3,600. Employer contributions are not subject to the earnings limit, but do count towards the annual allowance.

The annual allowance is set at £60,000 for 2023/24, having previously been set at £40,000. However, it is reduced where both threshold income exceeds £200,000 (broadly income excluding pension contributions) and adjusted net income (broadly income including pension contributions) exceeds £260,000. For 2023/24, the allowance is reduced by £1 for every £2 by which adjusted net income exceeds £260,000 until the allowance is reduced to the minimum level of £10,000.

Unused annual allowances can be carried forward for up to three  years, but the current year’s allowance must be used first. For 2020/21 to 202/23, the annual allowance was £40,000, the adjusted net income taper threshold was £240,000 and the minimum allowance was £4,000.

The lifetime allowance, set at £1,073,100, placed a limit on lifetime tax relieved pensions savings. Charges no longer apply if lifetime pension savings exceed this limit, and the allowances itself is to be abolished. However the 25% tax free lump sum that can be taken when the pot is accessed is now capped at £267,275.

If you have previously accessed a money purchase pension having reached age 55, your annual allowance for 2023/24 is £10,000.

Contact us at enquiries@ardury.co.uk to explore tax efficient pension saving options with you.