Firstly, the standard annual allowance for pension contributions – that is, the maximum pension contribution you can make free of Income Tax every year – will increase to £60,000, with effect from 6 April 2023. Previously, the limit stood at £40,000.

If you’re saving towards your retirement, you now have the opportunity – if financially viable – to greatly increase the amount you can pay into your pension pot each year, while still taking advantage of the generous tax allowances associated with pensions.

It’s worth remembering that if, for example, you pay the higher rate of Income Tax (42 per cenbt), for every £1,000 you contribute to your pension pot, you’ll receive tax relief of up to £420 – so the contribution effectively costs you only £580. Or, put another way, to hit your full £60,000 allowance, your effective contribution would need to be only £34,800 (Please note that only the basic rate of tax relief is available at the time of contributing – for anything over this amount, you will need to claim the additional tax relief via your annual return and reinvest it into your pension).

Stuart Lindsay is head of corporate financial planning at Gilson Gray Financial Management

And don’t forget that you can also take advantage of your pension annual allowance retrospectively if you haven’t used it all in previous years. You can go back up to three tax years and make the most of the unused allowances. However, the allowance for previous years will remain at £40,000.

The pension lifetime allowance is another notable change. Until 5 April 2023, the pension lifetime allowance (i.e. the amount you could hold in your pension pot without receiving a tax penalty) was capped at £1,073,100. However, from the start of the new tax year, the government intends that no one should have to pay a lifetime allowance charge. During the tax year from 6 April 2023 to 5 April 2024, the lifetime allowance will fall away. Then, from 6 April 2024, it is due to be completely abolished, meaning there would be no limit on how much you accumulate in your pension while still enjoying its tax advantages.

This measure will affect you if you’re a higher earner who has been able to maximise your pension contributions. The primary aim of the government policy is to encourage you to keep working, rather than retire once you reach the lifetime limit.

It means, in practice, that as long as you continue to earn, you can carry on paying into your pension pot without worrying about receiving a tax penalty.

The rules around pensions and tax planning can often be complicated and everyone’s individual circumstances are different. That’s why it’s important to have a plan in place that is tailored to your current situation and future goals. These new rules are positive changes for pension savers and for people working in the public sector especially, such as NHS doctors and surgeons, as well as business owners, these changes will be particularly relevant.

Stuart Lindsay is head of corporate financial planning at Gilson Gray Financial Management

New rules are positive changes for pension savers - Stuart Lindsay