Chancellor’s Budget broom sweeps away lifetime allowance

• Annual allowance increased from £40,000 to £60,000 from April 2023. Carry forward from 3 previous tax years will continue.
• Money purchase annual allowance increased from £4,000 to £10,000 from April 2023.
• The income threshold for the minimum tapered annual allowance increased from £240,000 to £260,000, and the TAA itself will rise from £4,000 to £10,000.
• Remove the lifetime allowance charge from April 2023 and abolish the lifetime allowance entirely from April 2024.
• Limit the amount of tax-free cash to 25 per cent of the current lifetime allowance (£268,275) from April 2023.#
• Tax certain lump sums and lump sum death benefits at the recipient’s marginal rate to the extent they would previously have been subject to the LTA charge from April 2023.
• The existing triggers for losing enhanced or fixed protection will be disapplied from April 2023.

Individuals who already have a protected right to take a higher pension commencement lump sum will continue be able to do so. Where amounts taken above the lifetime allowance are currently taxed at 55 per cent, these lump sums will instead be taxed at an individual’s marginal rate of income tax.

HMRC’s March 16, 2023, Pension schemes newsletter no.148 confirms the administrative details of the Budget changes, and the technical bulletin from the Government Actuary’s Department focusses on pensions taxation, pension fund investment and retirement planning. 

On March 27, 2023, HMRC published a further pensions newsletter with specific guidance (including worked examples) on how changes to the lifetime allowance will affect the benefits of those with enhanced or fixed protection.

The Finance (No 2) Bill 2023 was published on March 23, 2023, and includes clauses on the provisions bulleted above. The Bill is due to have its second reading in the House of Commons on March 29, 2023.

Our March briefing examines these changes in more detail and highlights some implications for schemes and pension savers.