Spring Budget 2023

I am working through and digesting all the recent announcements in the Budget and may yet write a more detailed breakdown.

The big headline is the change to pension allowances, just to bullet point these:

• The Government will remove the Lifetime Allowance charge from 6 April 2023, before fully abolishing the Lifetime Allowance in a future Finance Bill.
• The maximum Pension Commencement Lump Sum for those without protections will be retained at its current level of £268,275 (25% of £1,073,100) and will be frozen thereafter.
• The Annual Allowance will be increased from £40,000 to £60,000, and the adjusted income threshold for the Tapered Annual Allowance will rise from £240,000 to £260,000 from 6 April 2023.
• The minimum Tapered Annual Allowance will increase from £4,000 to £10,000 from 6 April 2023.

You will recall from my earlier editions on this very subject that changes to the Lifetime Allowance were sorely needed and driving unwelcome behaviors for the exchequer. I do note that the majority of the costs to the public purse seem to be falling into the years after the next election. Gordon Brown was reputed to have only introduced the 45p tax rate as a bear trap for the next Conservative Government and my immediate thought on hearing about the outsized generosity of the exchequer (letting us keep more of our own money), was that another bear trap has been laid for a future Labour Government. However, a few hours is a long time in politics but not long enough for these changes to survive Rachael Reeves confirming Labour will scrap them if they get into office. 

On this basis, I think it would be a brave person to decide to interfere with their existing protections against the Lifetime Allowance by putting in new contributions. There is nothing to stop a new chancellor re-imposing the old limits and leaving those that have lapsed their protection with enormous tax bills.

The full details of how the Lifetime Allowance will be changed have not been shared so the devil will be in the detail. There is no clarification on what it means for individuals that have already used most or all of their Lifetime Allowance. Will they get a second bite of the cherry and a reprieve for pots valued over the Lifetime Allowance? Does it mean the second Lifetime Allowance test at 75 is abolished? We don’t know at this point.

On the face of this, it makes pensions look far more attractive again and will take many out of unnecessary taxes (for the time being until a different chancellor puts the kibosh on it). In one sense, it does not matter as much what the Lifetime Allowance is now, it is far more significant what the Lifetime Allowance is in the year of your retirement. If that is some years hence for you, I would not relax at this news. Even if the Conservatives win again, it is easy to replace this or chop it down again. 

I also cannot shake the feeling of being very angry for those clients who have retired in recent years and have been clobbered by Lifetime Allowance charges which will have permanently reduced their retirement income. Although I am sure they are loving being retired, these changes leave a sour taste and I doubt any refund will be incoming from the Chancellor.

Setting my comments above to one side, this does now present some potentially fantastic opportunities for getting further monies into and out of pensions in a very tax efficient manner before the next election, but I think it is very much a ‘buy it while stocks last’ opportunity.