Changes to pensions tax allowances

In his March budget, the chancellor announced a raft of changes to pensions tax allowances. These limits were introduced in 2006 to restrict how much you could save into a pension scheme in a tax-efficient way. The chancellor’s changes included:

• Scrapping the Lifetime Allowance (LTA) altogether. The LTA was a limit on the amount of pension savings you could build up tax free over your lifetime and had been frozen at just over £1 million. If you went over the limit, you had to pay a tax charge at retirement on the excess of up to 55%. 
• Increasing the Annual Allowance from £40,000 to £60,000 per year. This is a limit on how much you can pay into a pension tax free in each tax year. Like the LTA, there is a tax charge if you pay in too much. 
• Raising the Money Purchase Annual Allowance from £4,000 to £10,000. This limit targeted people who had drawn out their benefits flexibly but continued to pay into a pension scheme. There is a similar limit for high earners (the Tapered Annual Allowance), which has also been raised to £10,000. 
• Capping the amount of tax-free cash you can take at retirement (also known as a pension commencement lump sum – PCLS) at 25% of the current Lifetime Allowance except where protections apply. It has been set at £268,275.