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5 shifts that could impact your financial pension plan

The changes to pensions and their related tax reliefs in March 2023 meant many were concerned about the impact it might have on their savings. Now that the dust has settled, there are many positives and a few areas of concern worth knowing about. At Broadbench, we keep on top of the market and shifting financial rules to make sure our customers continue to get the best deals for their needs. Here are five key points you should be aware of and how they might affect you.

(1) Changes to the lifetime allowance

        Where once there was a limit to how much you could keep in your pension pot without being penalised, the cap will be removed, and no tax will be charged as of April 6th 2024. It’s good news for those nearing their limit, as you’ll be able to continue to pay into your pension and enjoy the tax advantages of doing so without having to worry about the cost of exceeding the threshold.

        There is a particular opportunity for people with both final salary (defined benefits) schemes and money purchase pots.  We would encourage anyone with both types of schemes and/or approaching the lifetime allowance to get in touch with us at the earliest opportunity.

        (2) Changes to the annual allowance

        The annual allowance has increased by £20,000, moving from £40,000 to £60,000. At a basic level, this means you can increase the amount you can pay into your pension each year before incurring income tax as well as benefit from the tax relief that it affords. It’s also worth remembering that if you haven’t used all your annual allowance in the past three tax years, you can still do so retrospectively, albeit at the original £40,000 level. This means that some people may be able to contribute £180,000 this year, saving over £80,000 in tax!

        (3) Changes to the tapered annual allowance

        The tapering of annual allowances can be complex as it involves two calculations and various planning opportunities. Fortunately, we have experts who can make this simple for you. If you’re earning a threshold income over £200,000 and an adjusted income that’s more than £260,000, the tax relief limits imposed by reducing your annual allowance have shifted.

        Where previously the minimum was £4,000, it has now risen to £10,000, meaning you could add more to your pension without penalty.

        (4) Changes to tax-free cash limits

        The rules around how much you can withdraw from your pension without paying income tax have remained largely the same (25% of the lifetime allowance), but different tax-free lump sums can be taken depending on the type of lifetime allowance protection you might have.

        It can be a complicated calculation, so it’s worth seeking expert advice if you intend to withdraw money from your pension. You could also consider an Income and Capital Gains Tax-free option such as an ISA.

        (5) Changes to the money purchase annual allowance

        If you’ve started accessing income from your pension via a flexible-access drawdown, lump sum or another flexible option, it’s important to understand the money purchase annual allowance (MPAA). The previous limit was £4,000 annually but has risen to £10,000. We recommend talking to an expert regarding MPAA if you’ve begun taking money from your pension but wish to continue contributing to a Defined Contribution scheme.

        As with most financial matters, just when you think you know where you stand, the rules change. With an election on the horizon, they could be set to change again soon, too. If you’re looking for guidance regarding any aspect of your pension or financial protection planning, we’re here to help.

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