Make the Most of Spring Budget Changes | Standard Life
The Spring Budget brought about major changes to pension allowances that could impact your finances. Here’s everything you need to know to make the most of your pension savings in the new tax year.
The Spring Budget has introduced a number of changes that could impact your pension savings. While there is no denying the complexity of the UK’s pension system, understanding the new rules can help you make the most of your pension plan in the 2023/24 tax year.
What the Budget Means for You
I Haven’t Touched my Pension Savings
If you are still paying into your pension plan, the new annual allowance will work in your favour. Previously, the annual allowance was £40,000 or your total earnings – whichever was lower. However, it has now been increased to £60,000, meaning you can save more before facing an extra tax charge. You can carry forward any unused allowance from the last three tax years as well.
I’ve Taken or Will Take Taxable Money from My Pension Plan
Taking taxable money from your pension plan triggers the money purchase annual allowance, reducing your annual allowance. The good news is, the new annual limit is £10,000 instead of the previous £4,000. However, you cannot carry this forward. So, check if the allowance applies to you, and if you’re affected, you might be able to boost your pension savings.
I’m a High Earner and Saving into a Pension Plan
If you earn more than £260,000 in the 2023/24 tax year, the tapered annual allowance can gradually reduce your annual allowance. But the good news is, the lower limit of the tapered annual allowance has been increased from £4,000 to £10,000. If you’re affected, you can now save a little more without facing a tax charge.
I’ve Been Concerned About Exceeding the Lifetime Allowance
The lifetime allowance tax charge no longer applies from 6 April this year. If your savings have crept close to or have already exceeded the lifetime allowance amount of £1,073,100, you won’t have to pay an extra tax charge but you will pay income tax on your excess. If you previously had to pay a 55% charge if you took your excess as a lump sum, this change could save you a considerable amount of money.
- The annual allowance will continue to be indexed using the Consumer Prices Index (CPI) from the 2024/2025 tax year.
- Annual allowance limits are evaluated at the end of each tax year to determine which allowance was used before the maximum rate of tax is applied.
- Tapering does not apply to defined benefit (final salary) pension entitlements.
The Spring Budget brought about significant changes to pension allowances, benefiting high earners, those who have not touched their pension savings, individuals who have taken taxable money from their pension plan and those who have been concerned about exceeding the lifetime allowance. Make sure to check if the changes apply to you and consult a financial adviser if necessary.
The changes in the Spring Budget can have a major impact on your pension savings. Staying informed about the new rules is crucial to ensure that you make the most of the opportunities available to you. By taking advantage of the new allowances, you can take control of your finances and secure your future.