Spring Budget 2023: What it means for pensions
Many of us in the pension world were surprised by the Chancellor’s announcement in the House of Commons last week.
The last time I can recall being this surprised with pension changes was back in March 2015, when the then Chancellor abolished the requirement age of 75 for a money purchase pension to be used to purchase an annuity.
With regard to this month’s budget, here is a summary of the changes:
- The Lifetime Allowance charge will be removed from April 2023 before the Allowance is abolished entirely from April 2024 in the Finance Act.
- The Annual Allowance will be raised to £60,000 from April 2023.
- The Tapered Annual Allowance (for higher earners) will be increased back to £10,000 (up from £4,000) from April 2023.
- The Money Purchase Annual Allowance (those who have ‘flexibly’ accessed benefits) will increase from £4,000 to £10,000 from 6 April 2023.
- The Adjusted income threshold for the Tapered Annual Allowance will also be increased from £240,000 to £260,000 from 6 April 2023.
- Tax Free Cash – The maximum for those without protections will be retained at its current level of £268,275 (i.e., 25% of the current LTA £1,073,100) and will be frozen thereafter.
The Chancellor highlighted that these reforms will help ensure that high skilled individuals, such as NHS clinicians, are not disincentivised from remaining in the workforce.
As a result, there are now some good opportunities to increase your propensity to invest in a pension plan. For example, the increase in the Annual Allowance of £20,000 equates to the same amount you can invest into an ISA. Not to be sniffed at, if appropriate and affordable.
The biggest concern we receive from clients is how punitive the LTA has been on investment growth. In future, this will no longer be the case.
For those of you with Individual Protection and Fixed Protection registrations, we may need to review your arrangements in the coming fiscal year. I appreciate this will mean more work, on top of the work that we previously did. How things can change, but we need to adapt to these changes.
We understand it can be hard for you to plan accordingly for your financial future, when changes like this occur. We can only advise you on the here and now using the current legislation.
The political ping pong has already started, with the current Shadow Chancellor making it clear that she would reverse the abolition of the LTA cap.
With a UK election due to be held no later than 24th January 2025, I suggest that if you do decide to fill your boots, be aware of the danger of political risk to your financial planning, as well as changes to pension and tax legislation.