Pension Changes resulting from the Spring Budget 2023

Since the Spring budget announcements were made, we have been looking in great detail at the possible outcomes and opportunities now available for our clients. 

Having taken a closer look at the proposals we are now pleased to provide our ‘house view’ on the recent pension changes, and how these may impact on you achieving your financial objectives. We are aware that these changes may not apply to you personally, however we feel it is important that we ensure all of our clients are aware of these changes. 

Pensions can play an essential part in your financial planning and under the right circumstances can offer significant tax benefits. This paper summarises the opportunities available to our clients via the scenarios below.

These benefits include: 

• tax relief on contributions

• tax-efficient growth whilst invested

• tax advantages on withdrawals during retirement

If any of the below apply to you, before taking any action we strongly recommend contacting your Financial Planner to discuss your options in more detail. 

A Pathway to Revisit Funding Opportunities: 

Due to previous rulings, you may have paused or even stopped saving into your pension in order not to exceed the Lifetime Allowance (a taxation limit on how much you could save into a pension). To avoid penalties when exceeding the allowance, you may have previously obtained either Fixed Protection or Enhanced Protection. However, if you obtained this protection before 15th March 2023, then further to the latest announcements you may have an opportunity to start funding again without the penalty of losing your protection. 

Overcoming Limitations, Embracing Growth: 

Similarly, you may have previously decided to opt out of your employer pension scheme or, as a business owner ceased making company pension contributions to avoid exceeding the Lifetime Allowance. 

However, considering the recent changes it may now be possible to resume making contributions and therefore take advantage of valuable tax efficient growth allowing you to attain your long-term financial goals. 

Capturing the Changes: 

Equally, if you have already accessed tax-free cash, are under 75, and still have funds in your pension worth more than £1million, then you could capture the benefits of the Spring Budget changes. 

Before the changes, in a lot of cases, a further tax charge could apply at age 75 due to a ‘test’ on your pension benefits. However, you may be able to elect to ‘test’ your pension now, allowing you to lock in the benefits of the budget changes. 

Pensions as the Cornerstone: 

If you are saving for the future, then a pension remains a great option for most, but there is a limit on how much can be saved to a pension each year. As a result of the budget changes, the annual contribution limit has risen by an impressive 50%, from £40,000 to £60,000 gross per year. 

Tapered Annual Allowance:

The increased amount provides an excellent opportunity to evaluate your saving approach. 

Expanding Horizons with the Money Purchase Allowance: 

If you accessed your pension, for a one-off purchase, but find yourself in a position to carry on saving, then the budget changes also provide an improvement. 

Historically, once you draw any income from your pension, the maximum you can put back into a pension falls to £4,000 each year. The changes this spring now mean that the limit has increased to £10,000 gross each year allowing you to make the most of the tax advantages pensions offer. 

Conclusion: 

Pensions continue to play an essential part of financial planning, and with the results of the Spring Budget 2023 it means that for some, it’s never been more important to revisit your retirement strategy. 

If you have a pension, and any of the above scenarios are pertinent to your own situation, or indeed you just want to know more, then we highly recommend contacting your Financial Planner to discuss your own situation in more detail – you may be able to capture some of the opportunities that now present themselves. 

If you would benefit from us providing future updates to you in a different way to support your individual requirements, please let us know. 

Disclaimer: The above is for information only and should not be taken as constituting financial advice in any way. The information and guidance are correct at the time of issue. Please note - Pension taxation, Government policy and legislation may change at any time.