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0113 246 1234

Have you re-evaluated your pension strategy?

The recent overhaul of pension regulations impacts the number of tax-free contributions that individuals can make towards their pensions.

These amendments to the annual and lifetime allowances can significantly affect pension strategies.

Here is what you should be aware of:

Updates to the annual allowance

The annual allowance refers to the limit on the amount you can contribute to your pension in a year before being subjected to tax.

As of April 6, 2023, the annual allowance has seen a considerable hike from £40,000 to £60,000. This rise enables more individuals to augment their pension savings.

So, have you considered revising your yearly pension contributions?

The allowance encompasses the funds channelled into a defined contribution scheme in a tax year by you or your employer, as well as any increase in a defined benefit scheme within the same period. If your pension savings from the past three years exceed the annual allowance, you might be eligible for a carry-over.

While the modifications to the annual allowance can be advantageous for many, in certain cases your annual allowance may remain under £60,000. This could be due to substantial income or flexible pension pot access.

If you need assistance or advice on pensions, please contact an independent financial adviser.

Changes to the lifetime allowance

The lifetime allowance, currently at £1,073,100, is the total limit on tax-free pension contributions.

Starting from the 2023/24 tax year, the lifetime allowance will no longer apply to those initiating a pension. It will be completely scrapped, including for existing pensions, from the 2024/25 tax year onwards.

While the annual allowance could restrict your savings to some degree, the removal of the lifetime allowance is likely to encourage greater pension savings.

With the elimination of a lifetime allowance, it might be worthwhile considering your options for maximising pension pot contributions. An independent financial adviser can provide valuable guidance on this.

What other changes do you need to know?

The Government’s reform also positively affected the money purchase annual allowance and the tapered annual allowance.

The money purchase annual allowance concerns individuals who have begun pension withdrawals while still contributing. The limit on contributions before taxation was £4,000 until April 6, 2023, but it has now been elevated to £10,000.

If you’re drawing from your pension while still contributing, the increased money purchase annual allowance offers greater flexibility.

The tapered annual allowance applies to those with a threshold income exceeding £200,000 and an adjusted income of £260,000. The adjusted income limit has been raised from £240,000 to £260,000.

Independent financial advice

While the latest Government revisions to pension savings are generally viewed favourably, it is crucial that individuals strategically plan and stay informed of their financial limits to maximise the benefits of these changes.

For advice and support on this topic, contact our team today.

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