Pension breaks for high earners
The chancellor announced an increase in pension allowances for high earners, increasing the annual cap on tax-free pension contributions from £40,000 to £60,000. In addition to the annual increase, the tax-free lifetime allowance was scrapped removing the current £1.073M limit.
According to the chancellor, “No one should be pushed out of the workforce for tax reasons.” – a reference to senior doctors who have been retiring early leaving the NHS under-skilled and under-resourced.
The percentage of the working population that these moves will affect is very small and whilst it will undoubtedly affect senior doctors, it is not targeted at any particular sector leaving some critics to question the plan. Nevertheless, from 6th April 2023 the changes will come into effect.
The value of “adjusted income” was also increased from £240,000 to £260,000 meaning that very high earners will not start to suffer pension tapering until they earn a further £20,000 compared to now.
Finally, the money purchase annual allowance (MPAA) will rise from £4,000 to £10,000 which affects those that have retired but still wish to contribute to their defined contribution pension scheme.
If you are a higher earner and may be affected by these changes, it could be valuable to seek some independent financial advice and revise your tax planning strategy for the upcoming 2023/24 tax year.