DIGITAL FOCUS 2024

In the past year, there have been significant changes in pension tax allowances.

• The Annual Allowance (AA) (the most you can save towards your pension in a tax year before you have to pay an additional tax charge) increased to £60,000 from 6 April 2023.
• The Lifetime Allowance (LTA) (the maximum amount of pension savings and benefits you could build up over the course of your lifetime without paying an additional tax charge) was abolished from 6 April 2024.
• The overall amount of tax-free cash you can take from all your pension arrangements is now restricted to the Lump Sum Allowance of £268,275 (except in certain circumstances, such as where you have a protected right to take a higher tax-free lump sum).
• A reduced Tapered AA continues to apply to some higher earners.
• The Money Purchase AA that applies to individuals who’ve already started to take their defined contribution pension savings from a money purchase scheme, increased from £4,000 to £10,000 from 6 April 2023.
• Anyone who applied before 15 March 2023 for Enhanced or Fixed Protection against the LTA tax charge will no longer lose the benefit of those protections if they resume saving towards their pension.

Formerly pension savings in excess of the LTA were subject to an LTA tax charge (of up to 55%), but this is no longer the case.

However, the government has introduced new allowances from 6 April 2024, which limit the total amount of any lump sums and death benefits that can be paid tax-free from HMRC-registered pension schemes. These limits are unlikely to affect most people. However, they may affect the way some people take their benefits and the amount of tax they will pay. If you’re considering taking your benefits or think these changes may affect you, we recommend you take independent financial advice.

Please remember that neither XPS nor the Trustee of the Scheme can provide you with individual tax calculations or provide financial advice. It’s your responsibility to assess whether you’re impacted by any tax changes and it’s your responsibility to declare any personal tax charge due to HMRC on your self-assessment tax return.

If you’ve received benefits from any pensions before 6 April 2024 you may benefit from obtaining a ‘transitional tax-free amount certificate’ before you receive any further lump sum benefits after 5 April 2024. This may not be beneficial for everyone and so you should consider carefully whether or not to apply for a certificate. If you’re uncertain whether to apply for a certificate, we recommend you take financial advice.

HMRC is expected to publish guidance on how to apply for a transitional certificate, which may help you decide whether you would benefit from applying for a certificate or not. If you don’t obtain a certificate before you receive any further lump sums from any of your pensions you might lose the right to apply for one.

As ever, if you’re making decisions about your financial future, we recommend getting independent help and advice. MoneyHelper is an excellent place to start. It can also help you to find an authorised independent financial adviser (IFA) in your area.