Pensions Bulletin 2023/11 - Budget Special

Our viewpoint

This Budget Special summarises and comments on announcements made in today’s Speech and accompanying documents published today which are of potential relevance to pension schemes and their members.  The news is dominated by the substantial changes being proposed to pensions taxation, headlined by the ending of the Lifetime Allowance charge, the future abolition of the Lifetime Allowance and the increase in the Annual Allowance.

For our regular weekly update see Pensions Bulletin 2023/10 which was also issued on 15 March 2023.

Lifetime Allowance to be abolished and Annual Allowance is significantly raised

The Chancellor of the Exchequer, Jeremy Hunt, made announcements around two key pensions tax parameters – the Lifetime Allowance and the Annual Allowance – and related matters.

The Chancellor noted in his statement that currently around 3.5m people over 50 and below retirement age are not part of the labour force, and that these measures are intended to encourage such individuals to return to work as well as remove incentives for others to leave work or reduce hours, while at the same time simplifying the tax system.

  • The Lifetime Allowance

The Lifetime Allowance is the maximum amount of tax-relievable pension savings an individual can benefit from over the course of their lifetime, with any excess over the allowance currently attracting a potentially punitive lifetime allowance tax charge.

The Chancellor announced that this Lifetime Allowance tax charge will be removed from 6 April 2023 and the Allowance fully abolished in a future Finance Bill.

Currently, most individuals can claim up to 25% of their available Lifetime Allowance as a tax-free “pension commencement lump sum” (PCLS) at the time they become entitled to their pension benefits.  The maximum PCLS for those without any extra protections will be retained at its 2022/23 level of £268,275 and frozen thereafter.

Other lump sums for which amounts above the Lifetime Allowance were previously subject to a 55% tax charge will, from 6 April 2023, be taxed at the recipient’s marginal rate.

Those who are currently entitled to enhanced or fixed protections will, following the abolition of the Lifetime Allowance, be able to accrue new pension benefits, join new arrangements or transfer without losing the protection provided it was applied for before 15 March 2023.

  • The Annual Allowance

The Annual Allowance is the maximum amount of pensions savings an individual can make each year with tax relief without incurring a tax charge which aims to effectively recoup some of the tax relief given.

The Chancellor announced that the Annual Allowance will increase from £40,000 pa to £60,000 pa from 6 April 2023.  From the same date, the tapered Annual Allowance – the gradual reduction applied to the Annual Allowance for individuals with income above set levels – will also now level out at £10,000 for even the highest earners (previously £4,000), with the adjusted income level required for the tapered Annual Allowance to apply to an individual increasing from £240,000 to £260,000.  There will be no changes to the current provisions for carrying forward Annual Allowance from previous tax years.

The Money Purchase Annual Allowance – the reduced Annual Allowance applying to individuals who have flexibly accessed their money purchase savings – will also be increased from £4,000 to £10,000.  This will mainly benefit those who accessed DC benefits but now wish to resume pension savings, perhaps because they have returned to work.

Separately, secondary legislation will provide that open and closed public service pension schemes for a given workforce will be considered linked for the purposes of calculating Annual Allowance charges (thus allowing members to offset any negative real growth for Annual Allowance purposes in legacy public service pension schemes against the Annual Allowance) from April 2023.

The accompanying impact assessment notes that the changes to the Lifetime Allowance and Annual Allowance are likely to cost the Treasury in the region of £135m and £55m respectively in 2023/24, each growing to around £800m and £300m respectively in future tax years.  There are further costs associated with the increase in the Money Purchase Annual Allowance.

We are analysing these changes in more depth and will be publishing a News Alert discussing their impact and necessary actions.  [Update: News Alert 2023/02 is now available]


For more than a decade we have seen a series of big cuts to annual and lifetime limits on pension tax relief, resulting in large numbers of people being unable to save more into a pension without incurring an extra tax bill.  This Budget represents a sea-change in government policy and will set millions of people free to save more into pensions.  There will be an urgent need for such people to take financial advice to make sure that they are best placed to take advantage of the much more positive regime which has just been introduced – perhaps even before the start of the coming tax year and the new regime.

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Productive investment and DC schemes

The Chancellor promises to include measures in the 2023 Autumn Statement to “unlock productive investment from defined contribution pension funds and other sources”.  A paper has been published asking for feedback via five questions on the Long-term Investment for Technology and Science (LIFTS) initiative that was first announced last September.

The Government states that it is launching the LIFTS initiative “with a view to establishing new investment vehicles to crowd-in investment from institutional investors, particularly defined contribution (DC) pension funds, to the UK’s most innovative science and technology companies” and that it is “ready to make an initial commitment of up to £250 million to provide financial support to new investment vehicles or approaches that will achieve the LIFTS objectives and deliver Value for Money (VFM)”.

Feedback is requested from institutional investors, asset managers and investment consultants, particularly those connected with DC pensions, before 28 April 2023.  The Government then intends to publish a summary of responses in May 2023.

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Local Government Pension Scheme investment

The Government wants the Local Government Pension Scheme in England and Wales to move further and faster on consolidating assets.  A forthcoming consultation will propose LGPS funds transfer all listed assets into their pools by March 2025 and set a direction for the future.  This may include moving towards a smaller number of pools in excess of £50 billion to optimise benefits of scale.

The Government says that while pooling has delivered substantial benefits so far, progress needs to accelerate and that it is ready to take further action if needed.

The Government will also consult on requiring LGPS funds to consider investment opportunities in illiquid assets such as venture and growth capital.

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Write-downs for annuities products and insurer liabilities

The Government is legislating to address the pensions and corporation tax consequences of write-downs of liabilities of insurers in financial distress under the proposed new section 377A Financial Services and Markets Act 2000 and any subsequent court-ordered variation or termination of those write-down orders.


There are situations, thankfully exceptionally rare, where an insurer can apply to the courts to have its liabilities written down.  Unfortunately, for certain annuity holders, this could mean that not only would they be receiving lower payments, but such payments would also be unauthorised under the pensions tax legislation with all the penalties that follow.  The proposed legislation will address this issue.

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Midlife MOT to be extended

The Government is to expand and improve the midlife MOT tool to support individuals with planning for later life across Great Britain by:

  • Expanding the midlife MOT Jobcentre Plus offer to reach more claimants who are 50 and over through support sessions
  • Improving the digital midlife MOT tool
  • Working with employers and pension providers to encourage signposting to the midlife MOT and related support

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Finance Bill to come

As previously announced the Finance Bill containing some of these and other measures will be published on 23 March 2023.  We expect this Bill to also include the three pensions measures on which draft legislation was published in July 2022 (see Pensions Bulletin 2022/29) – namely:

  • The much-awaited commitment in law to enable low earners (by way of a notification and claim procedure) to receive tax relief on contributions they pay to schemes that operate the net pay arrangement, from 2025 in respect of savings made for tax year 2024/25 onwards
  • Authorising, from a tax point of view, benefits being paid from a collective money purchase scheme which is in wind up
  • Necessary adjustments to tax law where pension assets, transferred under the Dormant Assets Scheme, are reclaimable by their owners

Today’s Budget contained policy statements on each of these topics which we have linked to immediately above.

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Other measures coming into operation soon

There are also a number of other measures that have already been announced which come into operation from next month.  These include the following:

  • The point at which the 45% rate of income tax starts to apply will fall from £150,000 pa in 2022/23 to £125,140 pa in 2023/24
  • 1 pence is being added to the higher and top rates of income tax paid by Scottish taxpayers. As a result, in 2023/24 the rates will be 42% and 47% (compared to 40% and 45% in the rest of the UK).  The top rate threshold reduces from £150,000 to £125,140 in line with the rest of the UK.  All other Scottish thresholds remain unchanged
  • The Dividend Allowance, under which no tax is payable on the first £2,000 of dividend income, is reduced to £1,000 in 2023/24. It will then be cut further to £500 in 2024/25
  • The Capital Gains Tax threshold of £12,300 for individuals is being halved to £6,000 in 2023/24 and then to £3,000 in 2024/25
  • Corporation tax will increase from 19% to 25%, for the financial year starting on 1 April 2023 (but already impacting for company accounting years containing 6 April 2023). This full rate will only be applied to businesses with profits over £250,000, affecting around 10% of companies.  A new “small profits rate” will be introduced for companies with profits of £50,000 or less, and is set at 19% – ie there will be no increase in rates for these companies.  A taper will apply for companies with profits between £50,000 and £250,000

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