A new year means changes to pensions and allowances may be on the horizon. Keep on top of any forthcoming adjustments by reading our latest blog as we highlight some of confirmed changes to allowances and pensions this year.
State Pension increase from April 2022
The 2021 Autumn Budget confirmed that the State Pension will rise by 3.1% from April 2022. This rise will affect those who are eligible for the new flat rate State Pension (introduced in April 2016) or the older basic State Pension.
State Pensions will rise as follows:
- The full rate of new State Pension will increase to £185.15 a week, which is up from £179.60.
- The basic State Pension will increase to £141.85 (up from £137.60)
If you are unsure of how much State Pension you are likely to receive, check your State Pension forecast on the Gov.uk website by clicking here.
Keep in mind that, received on its own, the increased State Pension may not guarantee a secure retirement because it amounts to less than a minimum wage salary. Contact our financial planning team to find out how you can boost your pension savings or read our blog here.
Your pension allowances are staying put…
The standard pension Annual Allowance (which includes money paid into your pension plans every tax year by you, your employer and any third party) is currently £40,000 – it will remain the same for the 2022/23 tax year, so you have plenty of time to take advantage. Remember, if you make pension payments over the £40,000 limit, they will be subject to income tax at the highest rate which you pay.
It is also important to note that your annual allowance can taper down to £4,000 and is potentially limited by some relevant earnings:
- From 6 April 2020, individuals who have adjusted income for a tax year of greater than £240,000, will have their annual allowance for that tax year restricted.
- For every £2 of income that exceeds £240,000, £1 of the annual allowance is lost. There will be a £36,000 cap on the reduction, so anyone with adjusted income of or above £312,000 will have a minimum annual allowance of £4,000.
NOTE: The standard annual allowance is currently £40,000 per annum. Within this allowance, tax relief on members’ gross contributions is restricted to the higher tax rate of £3,600, or 100% of relevant UK earnings (the earnings attract tax relief). Contact our team to find out more.
A handy tip is to make use of any ‘carry forward’ unused allowances from the previous three years to avoid exceeding the limit.
The pension Lifetime Allowance (this is the total amount of funds you can build in your pension plans before additional tax charges) will remain frozen at £1,073,100 until April 2026, as confirmed in the 2021 March Budget.
Tax-free allowances will remain the same
- For the 2021-2022 tax year, the standard Personal Tax allowance went up from £12,500 to £12,570 – this will remain the same until April 2026
- Limits on the nil and residential rate bands for inheritance tax, and capitals gains tax allowances are also frozen until April 2026
- The ISA (Individual Savings Account) allowances continue at £20,000 in 2022/23 which means that you can save up to £20,000 in a Cash or Stocks & Shares ISA (or a combination).
- Similarly, the Junior ISA (JISA) allowance will stay put at £9,000
- The Lifetime ISA limit of £4000 (counting towards your annual ISA limit of £20,000) will continue this tax year – the government will add a 25% bonus to your savings, up to a maximum of £1,000 per tax year.
Get in touch
Are you making the most of your allowances? It is more important than ever to seek professional and independent advice to ensure you are making the right decisions for your future.
Contact our financial planning team (firstname.lastname@example.org) who will happily arrange a meeting at no cost to help you achieve more from your long-term financial plans.