Tax allowances and your pension

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

Pension commencement lump sum

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.

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, penalty tax charges for exceeding this limit will no longer apply, and your marginal rate of income tax will be applied to sums above £268,275. For the 2023/24 tax year, we still need to keep a record of the LTA and will confirm to you the amount used by your Boots pension. From April 2024, the LTA will be abolished.

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 over £200,000 and have an adjusted income above £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 Boots 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.

You can find out more about these tax changes here.