The UK government has recently announced changes to pensions tax that affect both the Annual Allowance (AA) and the Money Purchase Annual Allowance (MPAA).

Changes to the Annual Allowance

From April 6, 2023, the government is increasing the Annual Allowance, which is the maximum amount you can save into your pension each year without having to pay tax on it. The limit was £40,000 per year, but this has recently increased to £60,000. However, if your income is over £260,000, your AA will be reduced. For every £2 you earn over £260,000, your AA will be reduced by £1. The lowest amount your AA can be reduced to is £10,000 per year.

Changes to the Money Purchase Annual Allowance

The MPAA is the annual allowance for contributions to a defined contribution pension scheme after the individual has accessed their pension flexibly. From April 6, 2023, the MPAA will increase to £10,000 per year from the previous limit of £4,000 per year.

What Should You Do?

To make the most of the new changes, it’s crucial to review your pension arrangements. If you would like more information on this, please get in touch with your usual Drummond Laurie contact.