The Budget 2023
I was a bit disappointed that Gary Lineker didn’t feature at all in today’s Budget, but his name did make an appearance in Prime Minister’s Questions which preceded it, so that will have to do.
We were expecting (hoping) for a “boring Budget” (Jeremy Hunt’s words, not ours). And in many ways it was. However, there were some big, unexpected changes to pension rules, so much of our commentary will focus on that.
Rumours leaked over the past 48 hours that the Lifetime Allowance (the total amount someone can build up in a pension over one’s life) and the Annual Allowance (the amount someone can contribute to a pension in any given year) would both go up, to £1.8m and £60,000 respectively.
The Annual Allowance has indeed gone up to £60,000. But, surprisingly, Mr Hunt has taken the more dramatic step of scrapping the Lifetime Allowance altogether.
Scrapping the LTA is something we have been calling for for a number of years, so it’s nice to see it consigned to the dustbin. It always seemed odd to us to tax not only what you can contribute to a pension but also what it’s worth when you retire. Do one but not both, and the Lifetime Allowance created all sorts of practical complications that the Annual Allowance tends to avoid. So that’s where we are now. Good news for common sense.
However, it’s an interesting move politically. Wealthy pensioners with pensions worth £2m will be as much as £231,725 better off. That’s a big giveaway for the already wealthy.
However, there are some other subtle changes that are worth discussing as well.
The Tapered Annual Allowance (what the Annual Allowance reduces to for people who earn more than £125,600) will go up from £4,000 to £10,000.
The Money Purchase Annual Allowance (what the Annual Allowance reduces to for people who have already taken their benefits) will also go up from £4,000 to £10,000.
But most interestingly, the Pension Commencement Lump Sum (often referred to as “25% tax-free cash”) will be capped at £268,275, i.e. 25% of the current Lifetime Allowance, even after th LTA is gone. This will no doubt be tinkered with in future Budgets, hence we think this could be the beginning of the end for the PCLS. Clients with existing ‘protections’ such as Fixed Protection or Individual Protection can maintain their higher level of available PCLS, but now face a complicated decision as to whether they should top up their pensions and give up their right to a higher tax-free lump sum, or not.
In other news, ISA allowances have been frozen. And duties on draught beers will be 11p per pint lower in the pub than in the supermarket. There could be a few wealthy pensioners treating themselves to a pint to celebrate their pension windfall later (albeit, Draught Relief won’t come in until 1st August, but then again they should be able to afford it until then).
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