In April 2024, significant changes were made to pension taxes, affecting how much you can save and withdraw. Below is a breakdown of all the highlights and some things you may want to consider.
Annual Allowance: This is how much you can contribute to your pensions each year without incurring extra tax and is currently set at £60,000 a year. For your Atlas Master Trust pension, this is based on how much money you and your employer put into your pension.
Lifetime Allowance: This is the maximum amount that can be contributed to your pension over your lifetime. Until April 2023, going over the lifetime allowance would result in a tax charge. However, from April 2024, this limit was abolished and replaced with the Lump Sum Allowance.
Lump Sum Allowance: This is the maximum amount that you can take as tax-free cash. Generally, this is set at the lower of £268,275 or 25% across all your pension schemes.
Tapered Annual Allowance: For high earners, the tapered annual allowance reduces the annual allowance for each £2 of total taxable earnings above £260,000. You should seek independent financial advice if this applies to you.
Money Purchase Annual Allowance: If you’re already taking money out of your defined contribution (DC) pensions, such as by drawing an income or withdrawing cash lump sums of more than your 25% tax-free allowance, you can now pay in up to £10,000 a year to another DC pension before you start paying tax on the contributions.
Things to consider
Assess your situation: Check if these limits affect your pension contributions. You can do this by reviewing your payslips or pension statements.
Set your goals: The Retirement Living Standards can help you understand how much it will cost to have the lifestyle you want when you stop working. Use this to check whether your savings for retirement are on track.
Free guidance available: If you’re over 50 with a DC pension, consider seeking free guidance from Pension Wise, a service from MoneyHelper that’s available face-to-face or over the phone.