Page 15 - Budget Newsletter - March 2023

• The annual allowance, which sets a tax efficient ceiling on total yearly pension
contributions, will increase to a maximum of £60,000 from 2023/24. Annual allowance
tapering will apply when threshold income exceeds £200,000 and adjusted income exceeds
£260,000. The minimum tapered annual allowance will be increased to £10,000 (which will
apply when adjusted income is £360,000 or more).

• The MPAA, which is triggered the first time that certain pension benefits are drawn (for
example on drawing income under flexi-access drawdown or taking an uncrystallised funds
pension lump sum (UFPLS)), will rise to £10,000, also from 2023/24.

• A new cap on the tax-free pension commencement lump sum (tax free cash lump sum) will
be introduced from 2023/24. This will be set at £268,275, matching the effective ceiling
imposed by 25% of the current LTA. There will be an exception for anyone who already has
a protected right to take a higher pension commencement lump sum.

Taken together, these reforms will simplify the pensions tax regime and make it more attractive for
high earning individuals, such as hospital consultants, to remain in work rather than take early
retirement. The MPAA increase should also encourage some of the already retired to re-join the
workforce.

A Budget announcement on increasing the SPA from 67 to 68 between April 2037 and April 2039 had
been expected, but Mr Hunt made no mention of this in his speech. Nevertheless, a decision on
raising the SPA is due shortly. Any acceleration of the SPA would be controversial, given that
projections of life expectancy have been declining in recent years.

Salary sacrifice

In 2017 the Treasury introduced measures to curtail the use of optional remuneration arrangements
(OpRA) (salary sacrifice schemes). Most such arrangements are now subject to employer’s NICs (and
taxed on the employee) based on the amount of salary given up rather than the notional value (if
any) of the fringe benefit received.

Salary sacrifice for pension contributions remains favourably treated and fully exempt from the
rules. Cars with CO2 emissions of 75g/km or less – typically electric or plug-in hybrids – are also
exempt, which helps to explain why the Tesla Model Y was the third best-selling car in the UK in
2022, despite a then list price of over £50,000.

Planning Point

The exemption given from the OpRA rules to low emission vehicles makes these worth
considering if you want to exchange salary for a company car.

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