Spring Budget 2023: Significant Pension Changes and Tax Relief Updates

Spring Budget 2023 – Key Pension Changes and Tax Relief Updates

In the Spring Budget 2023, the Chancellor unveiled significant pension changes to encourage older employees to stay in the workforce while continuing to build their pension savings. From 6 April 2023, the annual pension contribution cap will be raised by 50%, from £40,000 to £60,000, with tax relief granted at a taxpayer’s marginal rate of Income Tax, subject to the increased limits. Carry-forward provisions for unused annual allowances from the last three tax years will remain in place for taxpayers with pension savings during those years.

Contrary to expectations, the lifetime allowance, which sets the maximum pension and lump sum eligible for tax relief at £1,073,100, will be abolished from 6 April 2023.

The adjusted income threshold for the Tapered Annual Allowance will be raised from £240,000 to £260,000 starting 6 April 2023. Individuals earning over £260,000 from that date will see their £60,000 annual allowance tapered, with a £1 reduction for every total £2 income exceeding £260,000. The annual allowance cannot be reduced to less than £10,000 (2022-23: £4,000). The Money Purchase Annual Allowance will also increase to £10,000 (2022-23: £4,000) from 6 April 2023.

Other incentives targeting workers over 50 include an expansion of the DWP’s “Mid-life MOT” Strategy, which provides financial, health, and career guidance ahead of retirement. Additionally, a new type of apprenticeship called “Returnerships” will be introduced to support those over 50 who wish to reenter the workforce.