Very interesting decisions being made and few shocks and surprises for us financial folk! Here we summarise the decisions that we think will affect our advice to clients:
- Lifetime allowance (LTA) scrapped. After 6/4/23, there will no longer be a lifetime limit applied to pension savings. Currently this is £1,073,100. Therefore any member will be able to save as much as they like and obtain tax relief from the Government.
Detail: Whilst this is beneficial for clients who may already have triggered the LTA and face a tax charge the amount of tax-free cash you can take will remain limited to 25% of the current LTA (ie: £268,275). Any pension savings in excess of this will need to be drawn as taxable income.
- Annual Allowance (AA) increased to £60,000 per year from 06/04/2023. In other words, how much you can save into a pension annually and obtain tax relief has been increased from £40,000 per year.
Detail: The £60,000 per year limit includes money received from you (the employee), your employer and the tax-man.
- The Money Purchase Annual Allowance (MPAA) has been increased to £10,000 per year. This means those clients who have triggered the MPAA via (for example) taking taxable income will now be able to save more in the future into their pensions (previous limit was £4,000) and obtain tax relief.
- Tapered Annual Allowance (TAA) which effectively aims to reduce the tax relief that can be claimed on pension contributions for the very highest earners has been increased to £260,000. In other words, only those with “adjusted income” over £260,000 (up from £240k previously) will start losing their pensions annual allowance.
Important things that will remain the same following budget includes:
- ISA allowances to remain at £20,000 (adult) and £9,000 (junior) per year.
- Tax and national insurance rates will not alter from previously announced levels
- No changes to inheritance tax thresholds
In summary, we believe this budget was aimed particularly at the NHS (although this may not seem very obvious to a “normal” person! Given the generosity of Public Sector (including NHS) final salary pensions this has led to tax charges being levied on higher earners (for example Surgeons and Doctors). We have experienced as a company (as we have clients who are in this category), people choosing to leave the industry early (by taking early retirement) as they feel that they are working on for very little (after punitive tax charges). By removing (or reducing) the impact to most grades of staff, this should reduce the impact on staffing the NHS in the long term.
Interesting thought! This is NOT meant to be a political statement however the Labour party (UK official opposition party) announced overnight that they would re-introduce the LTA whilst possibly addressing the NHS specific concerns. Could it be that we move into a situation where certain tax rules are applied to the NHS and different rules to everyone else? Very controversial and this will make for fascinating discussions/debates in the future!