Published
6th April 2023
In the spring budget, the chancellor announced big changes to both the Lifetime Allowance (LTA) and the Annual Allowance (AA). You will find a summary of the changes below:-
LTA Changes
The LTA It is the maximum amount of pension benefits that HMRC allows you to build up, over your lifetime, without having to pay extra tax on the benefits when you eventually receive them. The current standard LTA of £1,073,100 is being removed for any members with a retirement date on or after 6 April 2023 and the plan is to abolish it all together from 6 April 2024.
This change means that whilst we will continue to calculate the level of your benefits against the LTA in the 2023/24 tax year and confirm to you the percentage of the LTA you have used, there will be no LTA tax charge deducted from any excess benefits over the LTA as this will effectively disappear.
Instead, where you exceed your LTA, any benefits in excess of the LTA that you choose to take as a lump sum will be taxed at your marginal tax rate, rather than those benefits being subject to a 55% tax charge as they were before the changes.
The maximum amount of tax-free lump sum that you can withdraw from a pension will remain at £268,275 (25% of the current LTA of £1,073,100) unless you have a valid (enhanced) protection which was in place before 6 April 2023.
These changes should give you more room to grow your pension.
AA Changes
The AA is the maximum you can save in all of your pension arrangements each year without having to pay any tax. For members of a defined benefit scheme, like the LGPS, this is not the amount of contributions paid but the growth in your pension in any given tax year. The calculation in simple terms is a comparison of the value of your total LGPS pension at the start and end of the tax year, multiplied by a factor of 16 (plus any automatic lump sum and additional AVC payments).
The main changes announced to the AA are:-
• The AA limit will rise from £40,000 to £60,000 from 6 April 2023
• The adjusted income limit will rise from £240,000 to £260,000. The Chancellor also increased the minimum reduced AA that you can have under the tapering rules from £4,000 to £10,000.
These changes will give you a higher threshold to build up your pension from the 2023/24 tax year onwards.
Further information on these changes can be found on the government website by following this link https://www.gov.uk/government/publications/abolition-of-lifetime-allowance-and-increases-to-pension-tax-limits/pension-tax-limits
