New pension rules explained

Clare Stinton is speaking to the camera.

"The lifetime allowance change is particularly important - this was the total you could build up across all of your pensions without triggering a tax charge.

From the 6 April 2023 the tax charge has been removed and the plan is to abolish the lifetime allowance completely from April 2024.

The lifetime allowance is currently £1,073,100 for most people and now just provides a cap on the maximum tax-free amount you can take from pensions.

Broadly speaking, you can take 25% of your pensions tax free, up to a maximum of £268,275. If you have pension protection or a protected tax-free cash amount you may be entitled to a higher amount.

Anything above your lifetime allowance is either kept within a pension wrapper or taken as a lump sum and taxed as income.

Pension providers will continue to record lifetime allowance information – so when you access your benefits, or turn 75, your pensions will still be measured against the most recent allowance (£1,073,100) but no charge will be triggered on any excess.

The big question from pension savers with pots over £1 million is: ‘Should I start contributing again?’

As with many pension questions the answer is ‘it depends’.

But if you have the earnings to benefit from tax relief and/or wish to use your pension to protect against inheritance tax it may be beneficial for you.

What about lifetime allowance protection?

Some people had ‘protection’ on their larger pension pots which effectively gave them a higher lifetime allowance.

Often having pension protection meant you couldn’t make further contributions. This restriction has been lifted for those who obtained their protection prior to 15 March 2023 - they can now make contributions and still retain the higher tax-free cash cap."

All investments can rise and fall in value, so it’s possible to get back less than you pay in. You’ll usually need to be at least 55 (rising to 57 from 2028) before you can access the money in your pension. Pension tax rules can change, and any benefits will depend on your circumstances.

This video isn’t personal advice. If you’re unsure what to do, please contact us for advice.

Correct as at April 2023.

Nathan Long is speaking to the camera.

"The annual allowance is the maximum you can put into your pensions each year without triggering a tax charge. This includes contributions made by you, by your employer and the basic rate tax relief from the government.

On 6 April 2023, the annual allowance rose from £40,000 to £60,000. So, people who were limiting their pension contributions in previous years, may now be able to significantly boost their retirement pot. As an example of the impact this change could have, lets look at an example of someone earning £200,000 who hasn’t accessed their pension.

Under the old system, they’d be limited to putting £32,000 into their pension, with the government adding basic rate tax relief of up to £8,000. That’s a total contribution of up to £40,000 with a further £10,000 in tax relief that can be claimed back outside the pension. So all in all that means the individual could benefit from £18,000 of tax relief on a £40,000 contribution.

Under the higher annual allowance of £60,000, the same person could benefit from tax relief of up to £27,000. Now in Scotland the rates and bands for income tax are different so tax benefits will vary."

All investments can rise and fall in value so it’s possible to get back less than you pay in.

You’ll usually need to be at least 55 (rising to 57 from 2028) before you can access the money in your pension. Pension tax rules can change, and any benefits will depend on your circumstances. This video isn’t personal advice. If you’re unsure what to do, please contact us for advice.

Correct as at April 2023.

Nathan Long is speaking to the camera.

"The tapered annual allowance is only an issue for high earners, but unfortunately it’s horribly complicated.

Put simply, under the old rules, broadly if both your taxable income plus the value of any employer pension contributions, or the increase in the value of your defined benefit pension after your own contributions was more than £240,000, and your taxable income take away the value of your own personal contributions was more than £200,000. You’d be caught in the taper trap.

That means for every £2 over £240,000 you earned, you would give up £1 of annual allowance. Depending on your earnings that could be whittled all the way down to £4,000. Under the new rules that threshold will increase to £260,000, and the lowest your allowance can reduce to is £10,000.

This gives some additional opportunity for high earners to pay into pensions.

As an example, the old rules would leave someone earning £310,000 with a reduced allowance of £5,000. But under the new rules they’ll be allowed to pay in £35,000.

It’s very complicated, so if you think you’re caught, we’ve got factsheets that explain in more detail and advisers who can recommend an appropriate approach for you."

All investments can rise and fall in value so it’s possible to get back less than you pay in.

You’ll usually need to be at least 55 (rising to 57 from 2028) before you can access the money in your pension. Pension tax rules can change, and any benefits will depend on your circumstances. This video isn’t personal advice. If you’re unsure what to do, please contact us for advice.

Correct as at April 2023.