Two major 2023 pension changes contractors should know about
Saving for retirement is something you should give thought to even early on in your contracting career, and this year’s changes to pensions could have a significant impact on your financial planning.
2023 has seen a series of important pension-related updates that may affect both current and future retirees.
Let’s face it, pensions aren’t the most exciting of subjects, so we’ll keep this fairly brief!
Here’s the lowdown on the two headline pension changes that came about in 2023, in case they flew under your radar earlier in the year. And don’t worry, these measures are generally good news for retirement savers.
Pension Annual Allowance
From 6th April 2023, the standard annual allowance for pension contributions, that is, the maximum pension contribution you can make free of income tax every year, increased to £60,000. Previously the limit was £40,000.
If you’re saving towards retirement, this greatly increases the amount you can pay into your pension pot each year, while still taking advantage of the tax reliefs already associated with pensions.
And did you know… you can also take advantage of your pension annual allowance retrospectively if you haven’t used it in previous years. You can go back up to three tax years but remember that the allowance for years prior to 2023/24 will remain at £40,000.
The Pension Lifetime Allowance
The pension lifetime allowance is the amount you can hold in your pension pot without receiving a tax penalty. Until 5th April 2023 this was capped at £1,073,100. However the government plans to abolish this cap from 6th April 2024.
This may impact you if you are a higher earner who has been able to maximise your pension contributions.
The government’s objective in abolishing the pension lifetime allowance is to encourage people to keep working, rather than retire when they hit their lifetime limit.
It effectively means that so long as you continue to earn, you can continue to pay into your pension pot indefinitely without having to worry about being penalised by the taxman.
Retirement planning while working with Liquid Friday
When you are engaged by Liquid Friday as an umbrella contractor, you are automatically enrolled into our approved workplace pension scheme, as required by law.
However we also offer salary sacrifice pension options which enable you to pay more into your pension pot, while paying less tax.
In light of this year’s significant increase to the annual pension allowance and 2024’s abolition of the lifetime allowance, more contractors are choosing to go down the salary sacrifice route, or review their existing arrangements.
For more information on this, check out our blog “Salary Sacrifice Pensions for Umbrella Employees” and contact the team if it is something you would be interested in doing.
We also partner with Moneyhelper to help contractors access financial advice and tools, including some excellent pension guides, whatever your age and circumstances.