Annual allowance and lifetime allowance changes

Publication date: 23/05/2023 14:29:54

Changes to pensions tax limits were announced in the Chancellor’s Spring budget on 15 March 2023.

They affect the two main allowances for pension savings – a lifetime allowance and an annual allowance. These allowances are the amount of pension savings you can build up without having to pay a tax charge. If you go over these limits, you may have to pay tax.

The annual allowance is set by HMRC, and; in the LGPS; it is the maximum your pensions savings can increase by in a tax year before you receive a tax charge. In 2022/2023 the annual allowance was £40,000.

From 6 April 2023, the annual allowance will increase to £60,000. Alongside this, the money purchase annual allowance will also increase from £4,000 to £10,000. Changes will also be made to the tapered annual allowance, with the adjusted income level increasing from £240,000 to £260,000 and the minimum tapered annual allowance increasing from £4,000 to £10,000.

The lifetime allowance is the total value of all the pension benefits you can have; not including your state pension, pension credit, or any partner’s or dependant pension you may be entitled to; without triggering a tax charge. The lifetime allowance is to be removed from April 2024 and the charge for exceeding it will be zero in tax year 2023/2024.

If you plan to retire, as of 6 April you will not be subject to a lifetime allowance tax-charge. Any excess over the lifetime allowance limit will be taxed at the usual rate. We recommend seeking financial advice if you feel you have been affected as there have been changes to rules regarding protections.

See our Quick guide to budget changes for members of the Local Government Pension Scheme.