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A new tax year begins: what changes do pension planners need to know for 2023/24?

Following pension reform’s time in the spotlight at this year’s Spring Budget, the new 2023/24 tax year brings with it several pension policy changes. 

Aligning with Chancellor Jeremy Hunt’s goal of drawing “economically inactive” over-50s back into the workforce, many of these policy changes have been designed to incentivise workers – particularly those who are high-earners or highly skilled – to unretire or continue working past their intended retirement age.

In my latest blog, I break down the most important new policy changes that should be on every pension planner’s radar for 2023/24.

Reinstatement of the triple lock

Following a freeze for the 2022/2023 tax year, the Government’s pension triple lock guarantee has been reinstated. This means that the State Pension will rise in line with September 2022’s inflation rate, 10.1%, marking the largest-ever increase in the State Pension. 

Primarily, this impacts people eligible for the new flat-rate State Pension, introduced in April 2016, or the older basic State Pension. In practice, the triple lock means that those qualifying for a full new State Pension will receive £203.85 a week (up from £185.15). Meanwhile, those who reached State Pension age before April 2016 and are on the older basic State Pension will now receive £156.20 a week (up from £141.85).

Annual allowance (AA) increase

As of the start of the new tax year, the AA has increased by 50%, going from £40,000 to £60,000. This is the amount that a UK taxpayer can put towards their retirement without paying tax in any single tax year. 

If a person exceeds the annual allowance, they will not receive tax relief on their contribution. Further, the amount the allowance was exceeded will be subject to Income Tax at the rates which apply to them. 

Money purchase annual allowance increase

The money purchase annual allowance (MPAA) was increased from £4,000 to £10,000. When you first start to take money from a defined contribution pension pot, the amount that can be contributed to your defined contribution pensions while still getting tax relief may reduce — this is known as the MPAA.

Retirees who have already started to take pension income, but wish to resume or continue working longer, can therefore once again top up their pension funds, allowing them greater flexibility.

Lifetime allowance (LTA) charge

Although the current LTA cap of £1,073,100 will only be abolished at the start of the 2024/25 tax year, some changes to charges will apply this year. 

In this 2023/24 tax year, LTA checks still need to be carried out, but if the allowance is exceeded when benefits are taken during the member’s lifetime, there is no longer an LTA charge — any excess is simply taxed as income in the normal way. 

This means that when pension planners are deciding on pension funding for the future, the potential for an LTA charge no longer needs to be factored in.

It is vital that pension planners review their current retirement planning and consider carefully how these policy changes could impact their pension pot. For those who are unsure about how these changes might affect their plans, it is highly valuable to speak to an independent financial advisor, like a member of our team at My Pension Expert. An advisor can help you navigate this new pension policy landscape and make decisions that best suit your unique financial situation, ultimately empowering you to achieve your retirement aspirations.