What Does The Spring Budget Mean for Your Pension?

On Wednesday 15th March 2023, Chancellor Jeremy Hunt delivered his Spring Budget, which included the biggest shake-up in the taxation of pensions for over a decade. The Lifetime Allowance is being abolished altogether and the standard Annual Allowance is being increased by 50%.

In simple terms, these changes will enable people to save more before they get hit with a tax charge.

What are the Lifetime and Annual Allowance?

The Lifetime Allowance sets the total value of all the pension savings (excluding State pensions) you can build up before having to pay tax. It currently stands at £1.073 million and had been expected to stay at that level until 2026, but from 6th April 2023 it’ll be a thing of the past.

The Annual Allowance limits the amount that can be paid into your pensions in a tax year without having to pay a tax charge. It’s being increased from £40,000 to £60,000, with changes to the tapered Annual Allowance also coming in on 6th April 2023.

There’s a third limit, the Money Purchase Annual Allowance, which limits how much you can pay into your defined contribution pension arrangements in a situation where you’ve already started taking some benefits from them. It’s going up from £4,000 to £10,000.

Sounds good…but will it affect you?

The Lifetime Allowance and Annual Allowance were only expected to be a factor for a minority of people. Most UK pension savers weren’t likely to hit the Lifetime Allowance and don’t typically use up their full Annual Allowance each year.

Part of the reason for the change is to discourage workers from retiring early simply to avoid additional tax charges. NHS doctors are a widely publicised example. Many reports suggest doctors are retiring or reducing their hours purely because of the impact the current Lifetime Allowance and Annual Allowance has on their tax situation. The changes are intended to encourage people to stay in work longer, which should benefit our economy and public services.

The changes are therefore good news for you if you’ve got substantial pension savings and you’re concerned that, in time, you could exceed the Lifetime Allowance. You’ll no longer need to worry that you may have to pay an additional tax charge when you retire.

The amount of tax free cash lump sum available at retirement is being frozen at the current limit of up to 25% of the 2022/2023 Lifetime Allowance.

They’re also good news if you’re looking to boost your pension savings, either by increasing how much you regularly save or by making any one-off payments into your pension. The increased Annual Allowance will enable you to put more into your pension without a tax penalty.

The Finance Bill to bring these changes into law is expected to be published on 23 March 2023.

What about the State Pension?

Every year the State Pension is reviewed to take account of inflation, and new figures are announced. From April 2023, payments will be:

£203.85 a week (up from £185.15) for the full, new flat-rate State Pension (for those who reached State Pension age after 5th April 2016)

£156.20 a week (up from £141.85) for the full, old Basic State Pension (for those who reached State Pension age before 6th April 2016)

As ever, if you’re making decisions about your financial future, we recommend getting independent help and advice. MoneyHelper is an excellent place to start. It can also help you to find an authorised independent financial adviser (IFA) in your area.

Don’t let a scammer enjoy your retirement!

The Pensions Regulator has highlighted the potential risk of increased pension scam activity as fraudsters look to prey on people’s pensions.

Fraudsters are clever and know all the tricks to get you to hand over your savings. They are preying on people’s concerns around rising goods and energy prices, inflation, and cost of living pressures. These scam tactics include:

• Contact out of the blue
• Promises of high / guaranteed returns
• Free pension reviews
• Access to your pension before age 55
• Pressure to act quickly.

Did you know?

The Financial Conduct Authority (FCA) conducted research as part of the ongoing ScamSmart campaign. This found that half of pension savers don’t believe they are at risk of being targeted by a pension scammer. But pension scams can happen to anyone, and no pot is too small for a scammer.

Here are four simple steps to protect yourselves:

1. Reject unexpected offers - If you’re contacted out of the blue about your pension, chances are its high risk or a scam. Be wary of free pension review offers. A free offer out of the blue from a company you have not dealt with before is probably a scam. Fortunately, research shows that 95% of unexpected pension offers are rejected.

2. Check who you’re dealing with - Check the Financial Services Register to make sure that anyone offering you advice or other financial services is FCA-authorised.
   If you don’t use an FCA-authorised firm, you also won’t have access to the Financial Ombudsman Service or the Financial Services Compensation Scheme. So, you’re unlikely to get your money back if things go wrong. If the firm is on the FCA Register, you should call the Consumer Helpline on 0800 111 6768 to check the firm is permitted to give pension advice. Beware of fraudsters pretending to be from a firm authorised by the FCA, as it could be what we call a ‘clone firm’. Use the contact details provided on the FCA Register, not the details they give you.

3. Don’t be rushed or pressured - Take your time to make all the checks you need – even if this means turning down an ‘amazing deal’. Be wary of promised returns that sound too good to be true and don’t be rushed or pressured into making a decision.

4. Get impartial information and advice:

• MoneyHelper (www.moneyhelper.org.uk) – Provides free independent and impartial information and guidance.

• Pension Wise (www.moneyhelper.org.uk/en/pensions-and-retirement/taking-your-pension/pension-wise) – If you’re over 50 and have a defined contribution (DC) pension, Pension Wise offers pre-booked appointments to talk through your retirement options.

• Financial advisers (www.fca.org.uk/) - It’s important you make the best decision for your own personal circumstances, so you should seriously consider using the services of a financial adviser. If you do opt for an adviser, be sure to use one that is regulated by the FCA and never take investment advice from the company that contacted you or an adviser they suggest, as this may be part of the scam.

Remember – if something sounds too good to be true, it probably is!