Chancellor Jeremy Hunt has announced in the government’s Spring Budget 2023 that the Pensions Annual Allowance (AA) is to increase from £40,000 to £60,000 from 6 April 2023.
The adjusted income threshold for the tapered AA will also be increased from £240,000 to £260,000 from 6 April 2023 and the lifetime allowance is set to be abolished!
What does this mean for me?
The annual allowance is the limit on how much money you can build up tax-free in your pension in any one year. For GPs this is calculated with reference to the growth in your pension caused by your current year’s income and the dynamisation/revaluation of your accrued pension.
Raising the limit from £40,000 to £60,000 means that your pension pot could grow an extra £20,000 before paying any tax. Pairing this with the change in the dynamisation/revaluation dates to remove the current CPI disconnect will remove many more GPs from any AA charge.
Adjusted income threshold
The annual allowance will continue to be tapered, but there are changes to this too. The tapering works by reducing a person’s annual allowance by £1 for every £2 of ‘adjusted income’ earned.
The tapering now kicks in where adjusted income (total income plus pension growth) exceeds £260,000 rather than £240,000. The minimum tapered allowance has also been increased to £10,000 from £4,000.
Younger GPs are becoming increasingly concerned about their pensions and how quickly they may breach the lifetime allowance alongside the high contribution rates of the NHS pension.
GPs within 10 years of retiring were finding they were nearing the lifetime allowance rapidly and are subsequently considering early retirement.
With the lifetime allowance being abolished, this could encourage GPs nearing retirement to continue practicing for longer with younger GPs being able to save more towards their retirement without fear of heavy tax levies.
If you have any questions about pensions or any other financial matter, then please get in touch with one of our specialist medical accountants.