The lifetime limit on tax-free pensions savings is abolished as announced in UK Budget on the 15 March 2023. The lifetime allowance charge was removed from 6 April 2023 and will be abolished altogether from April 2024.

The current allowance applies to private pensions defined benefit and defined contribution plans; the UK State Pension is not affected. 

These changes are part of the UK government’s plan to encourage retirees to return to employment.

This was a charge of 25% tax on the amount over the member’s Lifetime Allowance upon a transfer to an Australian QROPS or upon another benefit crystallisation event. This only affected members with large UK pension pots over the standard or applicable protected Lifetime Allowance. 

Since the LTC would be deducted by the UK sending fund it would reduce the amount “received” by the Australian QROPS, so in many cases would reduce the Australian tax payable on the transfer, therefore the abolishment of the LTC will improve the position of such members and will simplify their transfer plans.

Pension Commencement Lump Sums (PCLS) will still be limited to 25% of the total pension pot up to the standard or applicable protected Lifetime Allowance.  A PCLS should not be taken without understanding that it may be taxed in Australia, as foreign income, as it is not tax free unless you reside in the UK. 

The Annual Allowance which is the amount that may be contributed to a UK pension scheme and be deducted for UK tax purposes is also to increase. In addition, the annual tax-free pension allowance will rise from £40,000 to £60,000.

The UK has increased the normal minimum pension age, when a person can flexi-access UK pension money, and therefore when the money can be transferred to the Australian superannuation regime.  This will be increased from age 55 to 57 on 6 April 2028, so it is important that you look at transferring your UK pension now so it will not have an adverse effect on your retirement planning.