Overall the Budget of March 2023 seemed to be positive for pensions., with a series of big and encouraging headlines as to the changes announced.
The major reform was the abolition of The Lifetime Allowance (The LTA), from April 2024, but with an effective withdrawal of its impact from April 2023, hence we can consider this an immediate boost.
For many of you reading this you may think The LTA irrelevant to you, because you needed to have total pension value of just over £1.07 million for it to bite and potentially lead to a punitive tax charge.
However, this allowance had been dragged back from previous highs (£1.8 million at one point) and there was a feeling that over time it would be affecting more and more people.
The abolition of it in its entirety has far reaching potential and frees all up individuals to go for ever higher pension savings, knowing they will be safe from higher punishing taxes should they breach the previous limits.
However, be wary. First, the Labour Party have hinted they will reintroduce The LTA. Of course, this may be posturing and there is no detail to this, but it does emphasise that nothing is static in politics and a different government could find ways to change the position again.
Second, and this is locked in, a sub-announcement to the main announcement was that the pension tax free cash lump sum limit will remain at 25% of the pension value up to a maximum of £268,275. Whilst there will be no limit on what you can save into a pension you will be limited in what you can take out tax free. Alongside this was an indication that this limit will be frozen.
The impact of frozen allowances or limits is pernicious, as is it is intended to create a higher tax take for the Exchequer, without appearing to raise tax levels.
We know from Inheritance Tax (IHT), that the government’s apparent generosity is often carefully calibrated to actually raise more taxation. Despite raising the overall total IHT allowance to £1 million for a couple, the amount paid in IHT has risen in recent times. That, is in part, down to frozen allowances which really can hit over time.
The March Budget also contained announcements about the amounts that can be paid into pensions, in terms of the contribution limits, and these open up the door for people to save more and get generous tax reliefs.
Finally, there were some technical aspects that were changed, for instance to do with tapering relief for higher earning individuals.
This was a significant and positive Budget for pensions, and there does seem to be greater scope now to pay more into pensions for most individuals, but as always with these matters, please be cautious, and take advice because what any individual should do will be based on their unique circumstances.
Trevor Downing FPMI FPFS
