Page 19 - Budget Newsletter - March 2023

• The annual allowance, which sets a tax efficient ceiling on total yearly pension
contributions, will survive, but its impact will be reduced by an increase to a maximum of
£60,000 from 2023/24. The tapering of the annual allowance will continue when threshold
income exceeds £200,000 and adjusted income exceeds £260,000 (previously £240,000). The
minimum tapered annual allowance will rise from £4,000 to £10,000 and will apply when
adjusted income is £360,000 or more (£312,000 in 2023/24).

• 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 also rise to from £4,000 to £10,000 from 6 April 2023.

• A new cap on the tax-free pension commencement lump sum will be introduced from
2023/24, reducing some of the tax benefit of the LTA abolition. The cap will be set at
£268,275, a level that equals the current effective ceiling based on the 2022/23 LTA. There
will be an exception for anyone who already has a protected right to take a higher pension
commencement lump sum.

These three measures are aimed at encouraging high earners to stay in work and lure those who
have already retired back into harness. However, the major beneficiaries will also include high
earners across the board.

Planning Point

The limits on the lifetime allowance and annual allowance have long been a constraint on
retirement planning. If you have been affected by either – or both – now is the time to revisit
the role pensions can play.

Salary sacrifice

Following the various changes in 2022/23, in 2023/24 NICs will settle down at up to 25.8% of gross
pay – up to 13.8% for the employer and up to 12.0% for the employee. The corollary is that avoiding
NICs can save up to 25.8% of pay. A widely applied example of turning NICs to an advantage is in the
use of salary sacrifice to pay pension contributions. Instead of making personal contributions out
of your net pay, you accept a lower salary and your employer makes a pension contribution. If the
employer passes on all the NIC saving, the pension contribution could be up to almost 34% higher,
as the example shows.

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