Budget 2023: Tax-free pension limits raised - here's what it means for your savings

zagfles

RSTime said:

zagfles said:

hugheskevi said:

If you start to take money from defined contribution pensions, the amount you can pay into your pensions and still get tax relief on reduces drastically. This limit, known as the "money purchase annual allowance", is currently £4,000 a year. However, it will rise to £10,000 a year from 6 April 2023.

So, if you take money out of your pension, the amount you'll be allowed to pay back in, and still get tax relief on, will drop from £60,000 to £10,000 from 6 April 2023. 

It would be helpful to elaborate that this does not apply to withdrawals of PCLS only

Currently, the most you can normally save into private pension pots in one tax year before you start paying tax is £40,000. This is known as the "pensions annual allowance".

A mention of carry-forward here would be useful.

Also the last paragraph:

The separate "lifetime allowance charge" will be scrapped from 6 April 2023. This currently sees a 55% fee applied to any amount taken as a lump sum above £1,073,100, or 25% is charged if you take any amount above the lifetime allowance as income

should perhaps make clear that the 55% fee is being replaced by marginal tax rate - this isn't stated in the main budget document but is elsewhere eg the link I posted above.

I did not appreciate this. So, if you are currently above the LTA, you will be taxed at 25% if you take your pension in 2023-24, but if you wait until 2024-25 when the LTA goes then you pay no tax?

No. The 25% charge is being abolished next month. The 55% charge is being replaced by marginal tax rate. Otherwise people would be able to take any excess over the LTA completely free of tax, which would have been ridiculous. The main budget document did imply both charges were being removed, but it was clarified elsewhere.

The reason for not simply abolishing the LTA next month is that all the legislation around PCLS (tax free cash) is based on the LTA. They want to cap the PCLS at 25% of the current LTA, so without the LTA that would require more complex legislation, and they may want to consult with pension providers about how they do it.

So in 2023/24 the LTA remains at it's current level, but the LTA tax is reduced to 0% if you go into drawdown (and then of course you pay marginal rate on withdrawals) or marginal rate if you take a lump sum.

PensionSaverPeter

I wonder what will happen if Labour get in and do re-implement the LTA cap?  Would they set it back to £1,073,100 or perhaps higher?

Will those that have since paid in to their pension to take them above the re-implemented cap be given some protection on that amount so they don't again get hit with the punitive tax charges.  It seems a bit disingenuous to hit them when they've have topped up in good faith they they wouldn't get hit with the massive taxes.

Pat38493

PensionSaverPeter said:

I wonder what will happen if Labour get in and do re-implement the LTA cap?  Would they set it back to £1,073,100 or perhaps higher?

Will those that have since paid in to their pension to take them above the re-implemented cap be given some protection on that amount so they don't again get hit with the punitive tax charges.  It seems a bit disingenuous to hit them when they've have topped up in good faith they they wouldn't get hit with the massive taxes.

I've just listened to an interview with the shadow chancellor where she seemed to imply that they would re-instate the LTA at the current level, and give "doctors" the same exception that judges have today (she was not pressed to further define what she meant by doctors).

PensionSaverPeter

Pat38493 said:

PensionSaverPeter said:

I wonder what will happen if Labour get in and do re-implement the LTA cap?  Would they set it back to £1,073,100 or perhaps higher?

Will those that have since paid in to their pension to take them above the re-implemented cap be given some protection on that amount so they don't again get hit with the punitive tax charges.  It seems a bit disingenuous to hit them when they've have topped up in good faith they they wouldn't get hit with the massive taxes.

I've just listened to an interview with the shadow chancellor where she seemed to imply that they would re-instate the LTA at the current level, and give "doctors" the same exception that judges have today (she was not pressed to further define what she meant by doctors).

Like everything else, this needs to be fleshed out in more detail.  Those going above the old LTA cap of £1,073,100 may need to tread carefully; they could still get hit with a massive tax payment on any money they add to their pension above the old abolished cap between now and when/if Labour get in (no later than 28 January 2025 if my source is correct).

zagfles

Pat38493 said:

PensionSaverPeter said:

I wonder what will happen if Labour get in and do re-implement the LTA cap?  Would they set it back to £1,073,100 or perhaps higher?

Will those that have since paid in to their pension to take them above the re-implemented cap be given some protection on that amount so they don't again get hit with the punitive tax charges.  It seems a bit disingenuous to hit them when they've have topped up in good faith they they wouldn't get hit with the massive taxes.

I've just listened to an interview with the shadow chancellor where she seemed to imply that they would re-instate the LTA at the current level, and give "doctors" the same exception that judges have today (she was not pressed to further define what she meant by doctors).

Judges use an unregistered scheme. How are they going to do that retrospectively for doctors? It doesn't sound like they've thought it through, in fact how could they, it's only 2 days since the budget. It's knee-jerk political point scoring, not carefully considered policy. There's probably not going to be an election for 18 months, so I wouldn't worry about it yet, wait until the BMA and hopefully some of the few independant and financially aware journalists press them for exact details of their proposals.

jaypers

One thing that won’t happen is to be penalised on anything you do while LTA charge is zero. Would be unprecedented to charge tax on previous tax years, effectively changing previous rules. Don’t think that would even be legal. I guess this raises the question on the best approach to take while there is no Max LTA if you want to protect yourself for it coming back in.

artyboy

Pat38493 said:

PensionSaverPeter said:

I wonder what will happen if Labour get in and do re-implement the LTA cap?  Would they set it back to £1,073,100 or perhaps higher?

Will those that have since paid in to their pension to take them above the re-implemented cap be given some protection on that amount so they don't again get hit with the punitive tax charges.  It seems a bit disingenuous to hit them when they've have topped up in good faith they they wouldn't get hit with the massive taxes.

I've just listened to an interview with the shadow chancellor where she seemed to imply that they would re-instate the LTA at the current level, and give "doctors" the same exception that judges have today (she was not pressed to further define what she meant by doctors).

Not a chance IMO - too many votes to be lost by other industry workers that will see themselves as equally deserving of an 'exception' as doctors. Pretty much anyone working in a medical, care or scientific role - can you imagine the backlash from nurses for a start, even if most of them may never reach the 'old' LTA limit.

Yes, there are vox pop soundbites that suggest many think this is a sop for the rich (ignoring the 10k taper input limit, because, well, that's just too much detail innit?), but there's no easy way to unwind it without looking either anti-doctor, or anti-everyone else.

Hence why IHT is where the real risk lies...

PensionSaverPeter

jaypers said:

One thing that won’t happen is to be penalised on anything you do while LTA charge is zero. Would be unprecedented to charge tax on previous tax years, effectively changing previous rules. Don’t think that would even be legal. I guess this raises the question on the best approach to take while there is no Max LTA if you want to protect yourself for it coming back in.

The 'exceeded LTA tax' only gets calculated when you start drawing that money, so if taking your pension benefits is still a few years away and the cap is reintroduced between now and then you could still get 'caught' so to speak.  It would be impossible to plan accurately for this as there's no way to predict at what level the cap would be re-introduced at (I would assume it will at least be above the outgoing cap).

zagfles

PensionSaverPeter said:

jaypers said:

One thing that won’t happen is to be penalised on anything you do while LTA charge is zero. Would be unprecedented to charge tax on previous tax years, effectively changing previous rules. Don’t think that would even be legal. I guess this raises the question on the best approach to take while there is no Max LTA if you want to protect yourself for it coming back in.

The 'exceeded LTA tax' only gets calculated when you start drawing that money, so if taking your pension benefits is still a few years away and the cap is reintroduced between now and then you could still get 'caught' so to speak.  It would be impossible to plan accurately for this as there's no way to predict at what level the cap would be re-introduced at (I would assume it will at least be above the outgoing cap).

It's crystallisation rather than drawing, if you're over 55 you could fully crystallise next tax year and take just the PCLS, and leave the rest untouched, you'd pay no LTA charge. But any further pension contributions could be hit by a reintroduced LTA charge.

Fully crystallising for those over the LTA may be sensible anyway, as growth will reduce the PCLS %. As long as you can invest it outside a pension with less tax on growth than your marginal tax rate. But watch out for issues like inheritance/benefts etc, 

dunstonh

I wonder what will happen if Labour get in and do re-implement the LTA cap?  Would they set it back to £1,073,100 or perhaps higher?

It was £1.6m in their final year of power.
The annual pension allowance was £225,000 too, and high earners didn't get tapered.    I don't believe Labour have said anything about restricting the annual allowance or increasing it back to where it was when they were in power) or allowing higher earners to pay more into pension as they allowed when in power.).

Will those that have since paid in to their pension to take them above the re-implemented cap be given some protection on that amount so they don't again get hit with the punitive tax charges.  It seems a bit disingenuous to hit them when they've have topped up in good faith they they wouldn't get hit with the massive taxes.

And how will those that crystallise in 24/25 (and probably 25/26) get captured as there will be no LTA in those tax years.  These are the unknowns.

I've just listened to an interview with the shadow chancellor where she seemed to imply that they would re-instate the LTA at the current level, and give "doctors" the same exception that judges have today (she was not pressed to further define what she meant by doctors).

So, if are a nurse, you would get no waiver.  That will go down well.    And the militant unions with their members increasingly suffering the LTA wont be happy either.