Martin Lewis has spoken about the pension changes announced in the 2023 spring Budget. The Money Saving Expert shared that the amount people can put in their pension once they have begun drawdown has changed.
Martin took to twitter to explain these changes. He said: “Pensions big changes to limits.
“PLUS he didn't say but money purchase allowance up from £4k to £10k. This is the amount you can put in your pension once you've already taken some of it.”
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Money Purchase Annual Allowance (MPAA) is a special restriction on the amount people can pay into their pension and still receive tax relief, once they've started taking it, reports the Express. The MPAA begins when someone starts to access their pension pot for the first time.
The MPAA replaces one’s annual allowance after they have started to draw their pension pots. The MPAA was originally set at £4,000 but it has been increased and is now £10,000.
This was made to prevent people from trying to avoid tax on current earnings or gain tax relief twice, by withdrawing pension savings and then paying them straight back in again. The main situations in which the MPAA is triggered are:
- if someone takes their entire pension pot as a lump sum or start to take lump sums from their pension pot
- if someone moves their pension pot money into flexi-access drawdown and start to take an income
- if someone buys an investment-linked or flexible annuity where their income could go down
- if they have a pre-April 2015 capped drawdown plan and start to take payments that exceed the cap.
Martin also pointed out that the increase to the pension annual allowance and the scrapping of the lifetime allowance that Chancellor Jeremy Hunt mentioned. The annual allowance will increase from £40,000 to £60,000 from April 6, 2023, with three years carry forward remaining.
Although, the lifetime allowance has been scrapped meaning there is no longer a £1million cap on how much people can put in a pension. The Chancellor explained that this is to encourage health care workers such as GPs to stay in work without getting penalised.
Pensions director at Aegon, Steven Cameron, spoke on the increase of the MPAA. He explained that the Chancellor’s bumper pack of pension tax relaxations will come as a welcome boost to many people.
Getting rid of the lifetime allowance coupled with increasing the annual allowance by 50% to £60,000 will be particularly beneficial to higher earners. He said: “But while not mentioned in his speech, the change which will benefit the greatest number of individuals is the increase in the little known MPAA which will support a greater number of over 55s staying in or returning to the workplace.
“The MPAA is increasing from £4,000 to £10,000. Many individuals over 55 who have taken income ‘flexibly’ from their money purchase pension may not have realised that by doing so, they reduce the maximum they can then save in a pension.
“They may have done so because they lost their job or needed extra funds to tide them over during the pandemic or the current cost of living crisis. At its previous level of £4,000, there was a real risk it stopped individuals re-entering the workforce from benefitting fully from the workplace pension that came with the job.”
On Wednesday (March 15), the Chancellor further announced that typical household energy bills will stay at £2,500 a year for at least three months from April 1. The energy price guarantee has been extended which will be a big relief for many families who struggle to keep up with rising bills.
The announcement followed a month-long campaign led by Martin, founder of MoneySavingExpert.com, which has been backed by 130 charities and consumer organisations. On his Twitter, Martin said: “CONFIRMED: The Energy Price Guarantee 20 percent rise has been postponed from April to July - meaning in practice it's cancelled. Exactly what my letter (below) to Chancellor asked for.
“Thanks to the govt for listening & to the 135 charities backing the campaign.”
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