Spring Budget and what it means for savers:

This year’s budget has been framed as a “getting people back to work” budget, and so unsurprisingly there was a big focus on pensions.

Although most of the changes might be considered as targeting higher earners, the changes announced do a have a wider societal impact. For instance, tax laws which affected the Lifetime Allowance and the Tapered Annual Allowance have over the past few years had the unintended consequences of putting pressure on essential services like the NHS. In order to avoid pension related tax bills, doctors and consultants have been restricting their hours or even retiring. So, the Government addressing this has a wider positive impact on us all.

Below we set out the changes announced in the Spring budget and what this means to savers.

Pensions Annual Allowance

Just to recap, the annual allowance is the total amount that an individual can have paid into a pension scheme (total from employer and employee) and get tax relief. Any pension contributions paid in excess of the annual allowance are subject to a tax charge.

From April, the annual allowance will increase from £40,000 to £60,000 which means that people can have more money paid into their pension which is good news!

Although, this change might not be relevant to all employees, it will be good news for some and especially those closer to retirement who are looking to maximise their pension pots.

Tapered Annual Allowance

Despite the Annual Allowance increasing, the tapering for higher earners remains in place albeit the starting point (Adjusted Income) has been increased from April from £240,000 to £260,000.

Employers should take advice on their treatment of higher earning employees and communicate any changes to their employees.

Lifetime Allowance

The Lifetime Allowance is the amount that anyone can build up in their pension without incurring a punitive tax charge (called the Lifetime Allowance Charge) when they withdraw money, reach age 75, die or transfer their pension to an overseas pension scheme. The current allowance is £1.073m.

The Lifetime Allowance will only be abolished from April 2024 within a future Finance Bill. However, from April this year the Lifetime Allowance Charge, will be removed.

However, although the Lifetime Allowance is effectively removed, the amount of tax-free cash that anyone can withdraw from their pension will be limited to 25% of the current Lifetime Allowance, meaning a monetary limit of £268,275.

Whilst Government has already made it clear that those with existing pension protection will be entitled to a higher amount, what still needs confirmation is whether or not this new limit will remain static, automatically linked to inflation or subject to ongoing review.

Despite the limit on the maximum tax-free cash, this change is good news and together with the changes to the Tapered Annual Allowance should stem the outflow of skills in essential services, like the NHS.

As soon as these points and others are clarified, we will be able to provide more detail on actions required by employers.

Money Purchase Annual Allowance

The Money Purchase Allowance restricts pension contributions for people who have withdrawn money from their pension in certain circumstances. From April, this limit increases from £4,000 to £10,000, which is good news for those people who needed to take money from their pensions to help deal with the cost-of-living crisis.

This gives them a better opportunity to rebuild their pension savings at some point in the future.