This afternoon’s budget has been rather an explosive one, with major changes announced concerning pensions, childcare, and benefits in a bid to boost economic growth. Chancellor Jeremy Hunt announced the measures from what has been called the “back to work Budget” to raucous applause in the chamber over lunchtime.
The biggest news of the Budget, however, came in a surprise cut to pension taxation.
Here is a summary of the key points that may affect you.
What did they have to say about the economy?
Mr Hunt advised that the UK is expected to avoid a recession this year on a technicality, although the economy is expected to shrink by 0.2%.
Last November, the Office for Budget Responsibility predicted that the average inflation rate for 2023 would be 7.4%. It now expects 2.9% by the end of 2023, down from 10.7% in the last three months of 2022.
Predictions ahead of today’s budget expected a rise in tax-free saving in an attempt to tackle the “pension trap” and incentivise retirees to keep earning.
The predicted rise in the annual tax-free allowance – the most a worker can save in their pension pots in a year before paying tax – has been confirmed, and is set to rise to £60,000 from its current mark of £40,000.
But the real surprise was the change to the Lifetime Allowance. Rather than raising the cap, as expected, the Chancellor abolished it altogether.
The Lifetime Allowance was the total amount of money you can build up in a workplace defined benefit pension scheme and savings in a defined contribution pension before you faced a further tax charge. The tax was levied on the excess over the allowance. This tax is now scrapped entirely.
This creates some exciting opportunities for your pension and your retirement planning.
“Tackling economic inactivity”
A cornerstone of the Chancellor’s budget was a set of plans aimed at “tackling economic inactivity” and encouraging over-50s, the long-term sick and disabled, and benefits claimants back into the workplace. Mr Hunt expressed that “those who can work should”.
Of the 6.6 million economically inactive people in the UK, more than a million have taken early retirement.
Mr Hunt announced a “Returner-ship” scheme, which functions much like an apprenticeship but for people returning to the workplace. The scheme will focus on re- and up-skilling older workers.
Energy Price Guarantee will stay at its current level until the end of June 2023. The Chancellor claims that this will save the average family an additional £160 on top of existing support measures.
The planned £500 hike in average energy bills, which was due to come into force next month, would have seen bills for the average household rise to £3,000.
Mr Hunt said, “With energy bills set to fall from July onwards, this temporary change will bridge the gap and ease the pressure on families, while also helping to lower inflation too.”
As was predicted, the fuel duty will remain frozen and the 5p reduction will be maintained for a further year.
Fuel duty was supposed to rise by RPI inflation in April, which would add 7p to the price of a litre of fuel. A temporary 5p fuel duty cut, announced by Mr Sunak in March 2022, was also due to expire this March.
Corporation Tax is set to increase from 19% to 25% as planned. From April, companies who make a profit of more than £250,000 will pay this new higher rate. Those with profits from £50,000 to £250,000 will pay on a scale between 19% and 25%.
Meanwhile, the small business Annual Investment Allowance has been increased to £1m. This means that 99% of all businesses can deduct the full value of all their investment from that year’s taxable profits.
No doubt you will have many questions about how the changes to pensions will affect you and what opportunities this presents for you and your family. If you would like to discuss your plan, please do get in touch via email at email@example.com or call us on 02920 782330.