Proposals in the Budget 2023 will abolish the lifetime allowance but cap tax-free cash at £268,275.
Pension savers who have previously registered for lifetime allowance protection are entitled to their higher tax-free cash amount.
Rachel Vahey, head of policy development at AJ Bell, comments: “The incredible news that the lifetime allowance is to be abolished came with a nasty sting-in-the-tail. Tax-free cash will be capped for pension savers at £268,275, although those who have previously applied for lifetime allowance protection get to keep any higher tax-free cash amount.
“Initially it seemed those with enhanced or fixed protection risked losing their protection – and therefore their higher tax-free cash – if they broke the protection rules by paying more into their pension. This would have effectively stopped them from being able to benefit from the removal of tax limits.
“It’s good news to learn that, instead, they will be free to start paying in contributions or transfer pension arrangements without any nasty consequences. In addition, they may be able to carry forward their unused annual allowance from the previous three years, meaning they could pay a total contribution of £180,000 next tax year if they have earnings to support it.
“We still need to see the details in the Spring Finance Bill, but it now looks like those with enhanced and fixed protection have got a boost to take advantage of the new tax-free pension rules while still getting to keep their valuable higher tax-free cash entitlement.”