What’s changing on 6 April?


It’s been hard to miss that pensions was a key area in the Spring Budget, but in all the excitement, it can be easy to lose track of exactly what’s changing.  So here is a quick recap of those changes, along with a reminder of the new exemption to the charges cap that applies to some schemes.

Spring Budget measures

Annual allowance

The Annual Allowance (“AA”) limits the total tax-relieved pension savings an individual can make each tax year across all registered pension schemes.

With effect from 6 April 2023:

  • the standard AA will be increased from £40,000 to £60,000
  • the money purchase AA (which applies to any subsequent DC savings by individuals who flexibly access their DC benefits) will be increased from £4,000 up to £10,000
  • the minimum tapered AA will also be increased from £4,000 to £10,000, and the threshold at which the taper applies from £240,000 to £260,000. The taper works by reducing the AA by £1 for every £2 of income over the taper threshold. This means that the minimum £10,000 taper will apply to individuals whose income is £360,000 or more.

Lifetime allowance

The Lifetime Allowance (“LTA”) limits the total amount of tax-relieved pension savings that an individual can build up over their lifetime across all their registered pension schemes without incurring an additional tax charge.

With effect from 6 April 2023:

  • the LTA charge will be removed
  • the maximum tax-free pension commencement lump sum will be frozen at its current level of £268,275 (25% of the 2022/23 LTA). Individuals with LTA protections will be subject to specific limits
  • certain lump sums which can currently be subject to an LTA charge of 55% (eg serious ill-health lump sums, LTA excess lump sum) will be taxed at an individual’s marginal rate.

With effect from 6 April 2024, the LTA will then be abolished altogether.  The detail of this will be set out in a future Finance Bill.

See our Alert for more detail.

Exclusion for performed-based fees from the charges cap

An exemption for certain performance-based fees from the charge cap (which applies to default funds in DC and CDC schemes used for automatic enrolment) comes into force on 6 April 2023.

Relevant performance fees include those calculated only by reference to investment performance that are paid when a fund or asset manager exceeds pre-agreed performance targets.

See our Alert for more detail.

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