Spring Budget 2023 – More Welcome Tweaks To Pension Rules
Further tweaks to pension rules were announced as part of Jeremy Hunt’s 2023 Spring budget in the hope that it should now be more attractive for doctors and dentists across the country to continue working for as long as they want to, rather than being forced into early retirement by punitive tax charges.
Prior to the budget there were rumours that the lifetime allowance (LTA), which is the maximum amount you can accrue in your pension in your lifetime before incurring tax charges, may be raised from the current £1,073,000 level up to as high as £1,800,000. In somewhat of a surprise, it was announced that the LTA would be scrapped altogether from 6 April 2023 which is a very welcome simplification when drawing your NHS pension. The maximum tax free lump sum has however been frozen at 25% of the previous LTA so £268,250, however this is only likely to be breached in a relatively small number of cases.
The other welcome change was an increase to the annual allowance (AA), which is the maximum amount you can accrue in pension growth in any given tax year before incurring tax charges. The AA will be increased from the current £40,000 amount to £60,000 from 6 April 2023 which again is a very welcome relaxation and will certainly take pressure off any members expecting AA tax charges in the next few years.
As part of this relaxation, the “adjusted income” level, which the annual allowance begins to be tapered, has also been increased from £240,000 to £260,000. Also the minimum tapered AA has been increased from £4,000 to £10,000.
Finally, a previous quirk whereby negative growth on one pension scheme (e.g. 1995 scheme) could not be offset against positive growth on another pension scheme (e.g. 2015 scheme) has now also been “fixed” so that going forward the overall pension input across the two schemes should now more accurately reflect the true growth.
The above changes, along with the recent “inflation fix” will result in many fewer doctors and dentists being caught by the annual allowance and therefore being forced into decisions regarding scheme pays, opting out of the scheme and early retirement so this is all very welcome.
The annual allowance is still in force though and cannot be forgotten about completely. Whilst the risk of any AA charges is now reduced, it is still crucial to keep on top of your pension affairs to monitor pension growth, particularly for high earners and those with a tapered annual allowance.
