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Wondering how Jeremy Hunt's changes to pensions taxes will affect you? Learn more about the budget 2023 and how it could impact your pension savings.

How Does Jeremy Hunt's Pension Tax Change Impact You And Your Savings?

By Alex Pritchard and David Pritchard


The Chancellor’s Spring Budget has certainly attracted a lot of buzz since its announcement, with many arguing that it’s a tough sell, except to the top 1% of the population. Among the proposed changes are major reforms to the pension savings system, which could have significant implications for many individuals.

In this post, we will explore the details of these changes and help you understand how they might impact your own pension savings.

Abolition of the pensions lifetime allowance

The lifetime allowance is a limit on how much you can stash away in your pension, whether you have one pot or multiple pots. The current cap is set at £1,073,000, and your pension pot’s worth is typically checked against this limit when one of three things happens: 

  • When you withdraw all your tax-free cash and start a drawdown plan or purchase an annuity.
  • When you reach the age of 75.
  • When you die.

If your pension savings exceed this amount, you may have to cough up a tax charge. Here’s where it gets interesting.

The lifetime allowance was previously forecast to go up to £1,500,000, but in a surprising turn of events the Chancellor has scrapped this allowance, starting from 2024. However, the current maximum limit of a 25 per cent tax-free lump sum withdrawal remains in place. It’s worth noting that you may be exempt from this limit if you have protection on the value of your pension above the current lifetime allowance.

As the dust settles on these significant changes to pension rules, it’s essential for you to seek guidance from an independent financial adviser if you’ve got pension savings approaching £1 million or more.

Changes to the contribution limit

As it turns out, the lifestyle allowance isn’t the only aspect undergoing changes. The new budget also includes modifications to the pensions annual tax-free allowance. This allowance determines the maximum amount you can save in your pension pot(s) within a single tax year before incurring tax charges. Starting from the next tax year, it will increase by 50 per cent from £40,000 to £60,000.

But there’s more. Previously, if you took money out of your contribution pension pot, you could trigger the money purchase annual allowance (MPAA) which slashes how much you can subsequently pay-in to just £4,000. However, under the new budget, the MPAA has been upped to £10,000. 

So, what does this mean for everyone?

There has been a debate over whether the new changes to the pension system in the budget will only benefit the wealthy and top 1% of the population. However, we’re not exactly sure that this is the case. 

Nowadays, pension pots of over a million pounds are a relatively regular occurrence, especially if you’re fortunate enough to have a final salary pension scheme which has been transferred out for you. These changes offer greater flexibility in managing pension savings, allowing individuals to save more. Of course, putting more into pensions and getting tax breaks for it is always a good idea!

It’s true that higher earners tend to benefit more from tax breaks than those with average incomes. But it’s worth noting that these individuals also pay a significant amount more in taxes to begin with. So, any changes made to personal allowances will ultimately affect them as well.

The bottom line

The previous MPAA allowance of £4,000 significantly impacted many people, preventing them from saving in what we believe is the most tax-efficient vehicle for savings in the UK. However, the larger, uncapped fund from 2024 is a positive development that will benefit all our clients still saving towards retirement. You can find out more about the new rules and how they will affect your retirement planning by tuning into our podcast, A Dab Of Investment

When it comes to addressing fiscal deficits, we recommend the removal of higher tax rate relief instead of freezing personal allowances. Although the latter hurts lower earners, higher earners who make pension contributions benefit more. On the other hand, removing higher rate tax relief doesn’t hurt lower earners. This is certainly something for the Prime Minister and Chancellor to think about!

As always, speaking directly to an independent financial adviser remains the gold standard.

If you’d welcome our input, expertise and experience, please get in touch by emailing us at or

The views expressed in this article are those of the author and do not constitute financial advice. Applewood Independent Ltd is authorised and regulated by the Financial Conduct Authority. For financial advice designed for you and your specific circumstances, please contact the author using the contact details provided in this article or, alternatively, contact the Applewood Independent Ltd office on 01270 626555.

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