As you may have seen, the Chancellor announced several measures in the Budget on 15 March 2023, including some changes to pensions tax. If you have already drawn your benefits from the New Airways Pension Scheme (NAPS), the measures will not affect your NAPS benefits. However, if you have not yet drawn all your NAPS benefits, they may affect some of your benefits and options. At a high level, the changes will mean fewer members are likely to incur additional tax charges due to having high-value benefits within NAPS.
We have summarised the main changes below based on what has been announced so far. We will provide more information about the changes as it becomes available. This article is a high-level and general summary which is not advice – individual circumstances may differ, and you should take independent financial and tax advice as appropriate.
The key highlights are as follows:
· The Lifetime Allowance (LTA) charge, an additional tax charge if the value of your pension benefits is above a certain limit, is to be removed from 6 April 2023. The Government has proposed abolishing the LTA entirely in 2024. The LTA is currently c£1.07m and will still apply in most cases if you draw a pension before 6 April 2023.
· For most members, the allowable tax-free lump sum you can take across all your pension benefits, from NAPS and elsewhere, is capped at one quarter of the current LTA, amounting to £268,275. This allowable tax-free lump sum limit will remain frozen at £268,275 after the LTA is removed. Members with certain protections from LTA charges may have a higher Pension Commencement Lump Sum (PCLS) limit in NAPS. If this applies, you should already be aware, as you will have had to apply for it specifically.
· For members who previously qualified for protection from the LTA, it is unclear how those protections will apply from 6 April 2023 or if they are still required. However, members with valid protection, applied for before 15 March 2023, will keep their entitlement to a higher tax-free lump sum calculated as one quarter of their protected LTA.
· The Annual Allowance (AA) limits the amount a person can save into a pension and benefit from tax relief. The AA will increase to £60k from 6 April 2023 for those with taxable income below £260k (but above £260k will taper down, capped at £10k for people with taxable income above £360k). As NAPS has been closed to further benefit build-up since 2018, the AA does not apply to most NAPS members. However, Senior First Officers who took the promotional/incremental pay link option in 2018 and gained promotion to Captain between 6 April and 31 December 2023 may benefit. The increased AA will provide more scope for any increase in the value of your NAPS benefits before a tax charge is triggered. Remember that any pension contributions you make to arrangements other than NAPS also count towards the AA.
· The Money Purchase Annual Allowance (MPAA) does not apply to NAPS benefits. It will rise to £10k from a current level of £4k from 6 April 2023. The MPAA limits the tax relief on further pension contributions if an individual has accessed benefits from a defined contribution arrangement (for example, the British Airways Pension Plan (BAPP)).
In the coming days, we will seek to contact any members who have made an election to draw their NAPS benefits who we believe may be affected directly by these changes. However, if you do not hear from us and believe this will affect you, please get in touch with us. You can do this via the contact us page of this website or by calling the Pensions Team on 020 8538 2100 (9 a.m.- 1 p.m., Monday to Friday).
We hope this provides you with a helpful update.
Issued on behalf of the NAPS Trustee