The Chancellor, Jeremy Hunt, made his Autumn Statement for Growth on 22nd November 2023.
There were several areas which affected pensions, which was a surprise given the absence of reference to them in the King’s Speech, which was delivered earlier in the month.
Lifetime Allowance abolition to go ahead
The Government has confirmed that the Lifetime Allowance will be abolished from 6th April 2024. The draft Autumn Finance Bill will go through the usual parliamentary process.
As the Lifetime Allowance will no longer exist, it is being replaced by a lump sum allowance and a lump sum and death benefit allowance.
Maximum pension commencement lump sum (tax free cash)
As expected, this will be 25% of the fund, up to a maximum of £268,275. This is effectively the current 25% maximum for someone with a current standard lifetime allowance of £1,073,100 and is to remain frozen at this level in future.
For individuals with scheme specific tax-free cash protection, the amount of available lump sum will only be reduced by 25% of the amount being vested, ensuring they are not worse off under the new regime.
Tax free element of trivial lump sums, winding up lump sums and small lump sums
In a change to what was expected, these will retain a tax-free element and will not reduce the amount of pension commencement lump sums mentioned above, but the requirement to have available thresholds for these payments will remain.
Taxation of death benefits under beneficiary drawdown and beneficiary annuities for deaths before age 75
In a surprise move, the Government decided not to go ahead with proposals it made in the summer, which means these payments will remain tax free.
Tax free part of any serious ill health lump sum or lump sum death benefit
Individuals with valid enhanced protection will be limited to the total value that could have been paid on 5th April 2024, with the excess subject to marginal rate income tax.
Available allowance for benefits taken before 6th April 2024
Benefits taken before that date will be subject to a transitional calculation, to establish their lump sum allowance, lump sum and death benefit allowance. Where all of the lifetime allowance had been used, they will have used all their allowances and so the transitional calculation will not apply.
Lifetime allowance excess lump sums
These are being replaced with new type of payment, a pension commencement excess lump sum, to be taxed at the individual’s marginal rate of income tax.
Transfers to qualifying recognised overseas pension schemes will be limited to the new overseas transfer allowance, which is their available lump sum and death benefit allowance. The excess will be subject to the overseas transfer charge.
November 23rd, 2023