Pensions: the need for change- Budget update 2023
15 March 2023Pensions have been much neglected in recent Budgets. To some extent that is a good thing in allowing financial planners to work with their clients on static, or near static, legislation. Indeed, this has been the case for many years. However, the world changes and problems (some might argue opportunities) arise. Sure, there's been an adjustment here, and an update there, with an overall trend of making pension saving less attractive, with some significant tax traps for those exceeding stringent limits.
This relative dis-incentive to save has seen some changes in attitude for those over the age of 50/55, with many just stopping work. We touched on this topic in our new book 'Coming in to Land, Runway to Retirement'.
A new phrase, 'the great resignation', reached some headlines as senior, experienced, and knowledgeable individuals just gave up working. Either retiring and drawing pension benefits or joining the ranks of the 'economically inactive'; either way, withdrawing from the UK workforce. This has become a real problem and if the Chancellor had not taken action, the health of UK plc could have suffered further.
The Chancellor needed to act, and he has, in his Budget of mid-March 2023. The changes made are significant and are focused largely on the over 50s. The headline pension limit changes to be implemented in the new tax year (2023/2024) are as follows:
|
Topic |
Old Allowance |
New Allowance |
Comment |
|
HMRC Lifetime Allowance (LTA) |
£1,073,100 |
Nil LTA charge (2023/2024) and then removed (2024/2025) |
Major change / Some remaining restrictions on high tax-free cash amounts remain (above £268,275) for those without protection |
|
Annual Allowance |
£40,000 gross pa from all sources |
£60,000 gross pa from all sources |
Significant increase |
|
Tapering of Annual Allowance |
Adjusted income above £240,000 |
Adjusted income above £260,000 |
Increase |
|
Money Purchase Annual Allowance (MPAA) |
Where applicable, restriction on contributions to £4,000 pa gross from all sources |
Where applicable, restriction on contributions to £10,000 pa gross from all sources |
Significant increase |
As you can see, there are a good few changes and increases being applied and this will give far greater scope for pension savings to be achieved and benefits drawn without falling into tax traps, based on this new legislation starting in around three weeks' time.
If you are affected by these changes and would like to review your pension and retirement planning further, then please contact the team at Chapters Financial in Guildford.
No advice is provided during the course of this blog, speak to your adviser before taking action.
Keith Churchouse FPFS
Director
CFP Chartered FCSI
Chartered Financial Planner
Chapters Financial Limited is authorised and regulated by the Financial Conduct Authority, number 402899
