This article is more than 6 months old
It was correct at the time of publishing. Our views and any references to tax, investment and pension rules may have changed since then.
Taken out protection against lifetime allowance cuts? Here’s what the 2023 spring budget pension changes could mean for you.
This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.
It was correct at the time of publishing. Our views and any references to tax, investment and pension rules may have changed since then.
The 2023 spring budget brought seismic changes to pensions. The annual allowance was hiked from £40,000 to £60,000 and plans announced to abolish the lifetime allowance (LTA). From 6 April 2023, the LTA charge that applied to funds over £1,073,100 will be removed, with the lifetime allowance set to be removed from legislation from April 2024.
It's a package of measures that will breathe new life into many people's retirement planning.
Lifetime and annual allowance Spring Budget changes – what they mean for you
Some complexities do remain, most notably around tax-free cash. This has been capped at 25% of the current LTA (£268,275). We don't know yet if the government plans to increase this amount in line with inflation, or whether it will stay at its current level long term. Anything over this amount in a pension will be subject to income tax at marginal rate when taken as an income.
How to inflation proof your retirement income
However, those who took out protection against previous cuts in the LTA will be entitled to a higher amount of tax-free cash.
Lots of these protections were given on the condition that no further contributions would be made to a pension. If they were made, the protection would then be lost.
This led to concerns that people who'd previously taken out these protections could be effectively prevented from benefiting from the removal of the LTA to build up further pension. That's because they'd lose their entitlement to increased levels of tax-free cash.
HMRC has since confirmed:
This move is welcomed and removes potential barriers that would've continued to get in the way of people's retirement planning.
These changes come into effect from 6 April. If you breach the current annual or lifetime allowance between now and then, you'll incur a tax charge.
Breaches of the annual allowance are taxed at the individual's marginal rate. Breaches of the lifetime allowance are taxed at 55% if taken as a lump sum and 25% if retained in a pension.
Similarly, if you have enhanced or fixed protection and resume contributions before 6 April, you'll lose this protection and entitlement to an increased level of tax-free cash.
This article isn't personal advice, if you're not sure what's right for your circumstances, ask for financial advice. Tax rules can change, and benefits depend on personal circumstances.
Get a deeper understanding of how the changes to the lifetime and annual allowances apply to you.
A financial adviser can help you review your retirement plan and give you the confidence that you're making informed decisions.
Find out:
Book a call with our advisory helpdesk to find out more. They won't provide personal advice, but they'll help you decide if you'd benefit from advice and discuss the charges involved. They'll then put you in touch with an adviser if you decide our service is right for you.
Sign up to receive the week’s top investment stories from Hargreaves Lansdown
Please correct the following errors before you continue:
Hargreaves Lansdown PLC group companies will usually send you further information by post and/or email about our products and services. If you would prefer not to receive this, please do let us know. We will not sell or trade your personal data.
This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.
Sign up to receive the week's top investment stories from Hargreaves Lansdown. Including:
Want to invest in gold? Here are three fund ideas to consider.
08 Dec 2023
6 min readDiscover the most popular funds with HL Stocks and Shares ISA investors in November 2023.
05 Dec 2023
4 min readHL Select Fund Manager Steve Clayton looks back on seven years of the HL Select fund range, how it’s performed and what’s next.
01 Dec 2023
6 min readThe headline grabbing National Insurance cut might look like good news, but the tax burden is still set to be the highest it’s been since the Second World War. Here’s what’s changed and what you can do to reduce your tax bill.
30 Nov 2023
4 min read