Spring Budget 2023
Jeremy Hunt delivered the government’s Spring Budget on 15 March 2023.
As widely trailed in the press, there were some significant changes affecting private pension schemes. There were also some changes that impact protection provision.
Here’s our summary of the proposals discussing the changes. Our article has links to the relevant Budget documents if you would like more detail.
Abolition of the lifetime allowance was not expected, but marks a progressive approach to retirement saving which alleviates the bizarre situation where many professionals feel they must leave their jobs to avoid triggering punitive taxes on their pension pots.
The decision to boost the annual pension allowance from £40,000 to £60,000 will be welcomed, particularly by senior NHS doctors, many of whom have experienced significant annual allowance tax charges in recent years. This has seen many of them leave, creating staffing shortages at a time when the country desperately needs doctors to clear record waiting lists.
The decision to increase the money purchase annual allowance to £10,000 will be broadly welcomed by those seeking flexible retirement, those who have had to access pensions due to the cost-of-living crisis, as well as employers struggling to retain workers in a tight labour market.
Income tax rates from 6 April 2023 were previously announced. For details, see:
National Insurance contributions from 6 April 2023 were also previously announced. To confirm, this means:
- Class 1A and 1B employers pay 13.8% on earnings over £9,100.
- Class 1 employees pay 12% on their earnings between the primary threshold and the upper earnings limit; between £12,570 and £50,270.
- Class 1 employees pay 2%, on their earnings above the National Insurance contributions upper earnings limit.
The inheritance tax threshold will be maintained at the existing level of £325,000 until April 2028.
The lifetime allowance charge which applies to crystallisations of pensions over the lifetime allowance is removed from 6 April 2023. This will be included in the Spring Finance Bill 2023. The lifetime allowance will be abolished from April 2024 – the legislation for this will be in a future Finance Bill.
The maximum pension commencement lump sum for those without protections will be retained at 25% of the fund up to a maximum of £268,275 (25% of the lifetime allowance of £1,073,100). The figure of £268,275 will be frozen thereafter.
Individuals who hold a valid enhanced protection or any valid fixed protections, where this protection was applied for before 15 March 2023, and a certificate or reference number subsequently issued, from 6 April 2023 will be able to accrue new pension benefits, join new arrangements or transfer without losing this protection. They will also keep their entitlement to a higher pension commencement lump sum.
The lifetime allowance impacts on several other lump sums. The individual must have lifetime allowance available for the following lump sums to be authorised payments: pension commencement lump sum, serious ill-health lump sum, uncrystallised funds pension lump sum and winding up lump sum.
This also removes the need for individuals to rely on protections from previous reductions to the lifetime allowance.
The following benefits that are currently subject to a 55% tax charge on excesses above the lifetime allowance will instead be subject to income tax on the excess at the individual’s marginal rate:
- lifetime allowance excess lump sum
- serious ill-health lump sum
- defined benefits lump sum death benefit
- uncrystallised funds lump sum death benefit
As widely rumoured, from 6 April 2023, the annual allowance has been increased from £40,000 to £60,000, the first increase since 6 April 2014. Carry forward of unused annual allowance from the three previous tax years will still be available.
Money purchase annual allowance
The money purchase annual allowance, the maximum amount that, when triggered, can be paid to money purchase pension plans without a tax charge was widely seen as a disincentive for individuals who have retired to return to work. From 6 April 2023 it’s been raised from £4,000 to its original value of £10,000.
Tapered annual allowance
The tapered annual allowance which reduces the amount of annual allowance available for high income individuals has had the adjusted income increased, although the threshold income remains at the present level. The limits are now:
Threshold income – £200,000
Adjusted income – £260,000 (up from £240,000)
The minimum tapered annual allowance increases from £4,000 to £10,000.
The adult ISA annual subscription limit for 2023/24 will remain unchanged at £20,000.
The junior ISA annual subscription limit for 2023/24 will remain unchanged at £9,000.
Health and disability white paper
The government is setting out a plan for health and disability benefits reform. The Work Capability Assessment will be abolished in Great Britain and eligibility for the health top-up in Universal Credit will be passported via the Personal Independence Payment benefit. Work search requirements will be set through tailored conversations with Work Coaches.
Rate and factors
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Thanks to Royal London for the original article seen here
The information provided is based on our current understanding of the relevant legislation and regulations and may be subject to alteration as a result of changes in legislation or practice. Also it may not reflect the options available under a specific product which may not be as wide as legislations and regulations allow.
All references to taxation are based on our understanding of current taxation law and practice and may be affected by future changes in legislation and the individual circumstances of the investor.