Tax allowances and your pension

In the budget on 15 March 2023, the chancellor made the following changes to pension tax allowances.

Annual allowance
The annual allowance (AA) is the total amount of tax-free pension savings you can make in a year. The standard AA has been raised and is now £60,000. 

However, if you earn more than £200,000 in a year and have an adjusted income over £260,000, your AA is reduced by £1 for every £2 above this amount and could be as low as £10,000. Your AA is based on your total income for the year, not just your Cummins salary. If your pension savings for the year are more than your AA, you’ll need to pay a tax charge.

Money purchase annual allowance
If you’ve accessed any pension savings flexibly but are continuing to save into another pension, the money purchase annual allowance (MPAA) will apply to you. This has been raised and is now £10,000. 

Lifetime allowance
The government previously placed a limit called the lifetime allowance (LTA) on the amount of tax-relieved savings you could build up over your lifetime. 

From April 2023, this limit will no longer apply. 

Tax-free cash lump sum at retirement
When you take your benefits, you can take a tax-free cash lump sum of up to 25% of the value of your pension pot. A limit of £268,275 now applies to this lump sum. 

If you previously had an LTA protection, this may protect the value of the tax-free lump sum amount you can take at retirement.