As of 6th April 2023, significant changes were made to pension allowances in the UK. The annual allowance for pensions has been raised from £40,000 to £60,000, providing individuals with the opportunity to contribute more to their pension funds on a yearly basis. This increase also extends to employers who can now contribute more as well. Additionally, any unused annual allowance can be carried forward for up to three years.
These changes also benefit individuals with substantial pension savings who previously had fixed protection on their pension pots to avoid the lifetime allowance charge. With the removal of the lifetime allowance charge, fixed protection becomes irrelevant, allowing these taxpayers to contribute more to their pension pots if they desire.
For individuals who own their own companies, it’s important to consider the tax relief the company receives for the pension contributions it makes to employees. The tax deduction is applicable only for the accounting period in which the contributions are actually paid and cannot be accrued or pre-paid.
Considering the recent increase in corporation tax rates, where companies with profits over £250,000 now face a 25% tax rate and a marginal rate of 26.5% applies to profits between £50,000 and £250,000, pension contributions can be utilized to lower corporate profits to the desired level.
If your company’s accounting period crosses 1st April 2023, we can assist you in calculating the numbers.
Approaching retirement age, it may be wise to explore options for accessing your pension, such as annuitizing some pension pots or opting for draw-down. While annuity rates are currently favourable, it is recommended to seek independent pensions advice regarding the ideal time to convert pension savings into an annuity.
Moreover, it has become easier to continue making pension contributions even after starting to receive taxable pension benefits, as the money purchase annual allowance (MPAA) has been increased to £10,000.
Lastly, it’s essential to ensure that you have maximised your state pension entitlement by having 35 full years of National Insurance contributions (NIC). If there are gaps in your NIC record since April 2006, you have the option to make voluntary class 3 NIC payments to fill those gaps. However, it’s crucial to note that the voluntary payment deadline is 31st July 2023.
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