Budget 2023 – What the changes mean for you and your clients

Budget 2023 – What the changes mean for you and your clients

Jeremy Hunt announced his Spring Budget on 15 March which proved to be an eventful budget for pensions. On 23 March the Spring Finance Bill 2023 was published, giving greater clarity on the changes. In true form, these pension changes have arrived like buses. It did however make for an exciting budget for our industry, especially if you are a pub going adviser thanks equally to the “Brexit Pubs Guarantee”. This for pensions is a positive step in the hope of pensions simplification, encouraging savers and a nod in the direction of the government’s attempts to attract over 50’s back to the workforce.

Focusing solely on pensions, details on these changes and how they may impact your clients are outlined below:

• The long tinkered with and no longer fit for purpose Lifetime Allowance (LTA) was removed in a surprising move by the government. For the tax year 2023-24 the existing processes will remain unchanged, with a nil tax charge applied where the LTA is exceeded.

• Where LTA tax charges would previously have been applied (at 55% for funds taken as a lump sum, and at 25% for funds taken as income), these charges have been removed and therefore any funds drawn above the LTA will only be subject to income tax charged at their marginal rate. This includes the following circumstances:

• LTA excess lump sum
• Serious ill health lump sum
• Uncrystallised funds lump sum death benefits
• Defined benefit lump sum death benefits

• The LTA will be abolished altogether from April 2024, which should see some of the onerous tasks removed for clients, advisers and pension providers.

• The Pension Commencement Lump Sum (PCLS) was, disappointingly but not surprisingly, capped at £268,275 (for those without PCLS protection). PCLS rules remain in place, limited by the LTA, or up to the client’s level of protected PCLS if that is higher.

• The Annual Allowance will be increased from £40,000 to £60,000 to support the new flexibility and the removal of the LTA. This change along with the MPAA provides an opportunity to review clients are maximising their contributions where appropriate.

• The Money Purchase Annual Allowance is increasing from £4,000 to £10,000 in a further change that was long needed to encourage over 50’s back to the workforce.

• The Tapered Annual Allowance adjusted income threshold has been increased from £240,000 to £260,000 and the minimum allowance level increased from £4,000 to £10,000

Most of the above changes will take effect from today (6 April 2023) and so starts a busy year for the adviser community and pensions industry, especially in the view of the Labour party’s comments regarding reversing the LTA changes should they take up residence at number 10 Downing Street in 2024. For now, these changes give greater flexibility to contribute and grow your client’s pensions without the concern of a LTA tax charge for breaching a threshold or the potential loss of some protections. Therefore, this can only be considered a positive step for savers and pensions.

If you have any questions you would like to discuss please visit the contact page on our website to find the relevant team or contact your usual Business Development Manager.

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