On 6 April 2023, the pensions annual allowance increased from £40,000 to £60,000, and the pensions lifetime allowance was effectively abolished.
You can now contribute far more to your pension funds each year, and so can your employer. Any unused annual allowance can also be carried forward up to three years.
This freedom to contribute also applies to those with large pension savings who have fixed protection on their pension pots, to stop the lifetime allowance charge from applying. Now the lifetime allowance charge has been removed, fixed protection is irrelevant and those taxpayers can contribute more to their pension pots if they wish to.
If you run your own company, you need to consider the tax relief the company receives for the pension contributions it pays to employees. The tax deduction is only given for the accounting period in which the contributions are actually paid, the cost cannot be accrued or pre-paid.
As the corporation tax rate for companies with profits above £250,000 increased on 1 April 2023 to 25% and a marginal rate of 26.5% now applies to profits between £50,000 and £250,000, pension contributions can be used to bring corporate profits down to the desired level.
We can help you crunch the numbers if your company’s accounting period straddles 1 April 2023.
If you are nearing retirement age, you may want to start taking your pension by either annuitizing some pension pots or taking a draw-down. Annuity rates are currently high, but you should take independent pensions advice on when to convert pension savings into an annuity.
It is now easier to carry on making pension contributions once you have started to take taxable pension benefits, as the money purchase annual allowance (MPAA) has been increased to £10,000.
Finally, don’t forget to check whether you have maximized your state pension entitlement by having 35 full years of NIC. Where you have a gap in your NIC record since April 2006 you can pay voluntarily class 3 NIC to fill that gap, but you must make the voluntary payment by 31 July 2023.