The rules underpinning what you can contribute to a pension, and the rules around the Lifetime Allowance, have changed significantly from 6 April 2023.

The Annual Allowance (AA) increased from £40,000 to £60,000. The AA is a yearly limit, and pensions contributions up to this limit attract tax relief. The AA applies to personal, employer and employee contributions.

Rules around the tapered AA. If whatʼs called your ʻthresholdʼ income (broadly, income less personal pension contributions) is more than £200,000 in a tax year, the AA is restricted and falls by £1 for every £2 of ʻadjustedʼ income (broadly, income plus occupational and employer pension contributions) above a particular limit. In the past, the limit was £240,000. This has changed to £260,000. In the past, your minimum AA could be reduced to as little as £4,000. The minimum is now £10,000.

The Lifetime Allowance (LTA). This has been the total that you can build up in pensions savings without incurring a tax charge. The LTA has been £1,073,100, and in some cases, higher, if you have special LTA protection. If your pension fund is more than the LTA, in the past, there has been a charge on the excess. This would usually come into play when you first accessed pension income, or reached age 75. ʻExcessʼ amounts taken as a lump sum have been taxable at 55%, and ʻexcessʼ amounts left in the fund at 25%, with further withdrawals taxed at your marginal rate of tax. The Budget has removed the charge, and the LTA itself will be abolished from the 2024/25 tax year. This is clearly a significant advantage to those with larger pension pots.

The amount of the pension fund which generally can be taken as a tax free lump sum remains £268,275 (calculated as 25% of the LTA). The legislation will be amended to set the tax free amount specifically, rather than being calculated by reference to the LTA.

The Money Purchase Annual Allowance (MPAA). This impacts people, over the age of 55, who have already started to access their pension fund, and itʼs a limit on how much can then be paid into a pension without attracting a tax charge. It rises from £4,000 to £10,000.

What happens next?
Much press coverage focussed on the very highest earners, but there is potential benefit in many cases. The ripples go much further than just the size of the pension pot: they can also affect when you plan to retire and are aimed at making it more feasible to continue working whilst still making pension provision for the future. Pensions could also have a role in inheritance tax planning, helping you pass capital to the next generation without a tax charge. We recommend reviewing plans in the light of all these changes – with a prudent eye, also, to  the possibility of a future government taking a different approach.

If you would like more information or any advice on this article then please get in touch with us on 01295 250401 or email You can also contact us here with your query and we will get back to you.

Information for readers: This material is published for the information of clients. It provides only an overview of the regulations in force at the date of publication, and no action should be taken without consulting the detailed legislation or seeking professional advice. Therefore no responsibility for loss occasioned by any person acting or refraining from action as a result of the material can be accepted by the authors or the firm.