Astute Budget Breakdown
In a change to our regular Astute Market Overview, we’ve got an Astute Budget Breakdown following the chancellor’s Spring Statement last week.
There’s a lot of ground covered in the speech: from the extension of the energy price guarantee (that we mentioned here), to full expensing for businesses. From reform to disability benefits to the staged roll out of 30 hours of free childcare a week.
We won’t go into all of the detail here, as we’ve released a written overview document last week that contains details of the measures (you can find it here); in this budget breakdown, we’ll cover some of the salient points that our financial planners will be discussing with clients.
Before we get into it, please note that tax rates can and do change, and the tax position described is Astute Private Wealth’s understanding of the position as at 15th March 2023.
Job vacancies hit a record high last year. In a bid to tackle economic inactivity, and, to paraphrase Jeremy Hunt, get over 50s off the golf course and back to work, the chancellor made notable changes to pensions.
One of the biggest changes in the budget is the removal of the lifetime allowance – the limit on how much you can build in your pension pot before an additional tax is levied.
Introduced in 2006, the Lifetime Allowance currently sits at just over £1,000,000. The removal of this allowance targets mid-high earners who have built up (or will build up) a large pension over their working life.
It was also announced that both the annual allowance and money purchase annual allowance will be increased: the annual allowance – the limit on the amount of pension contributions you can make that will be subject to tax relief – will be hiked by 50%, from £40,000 to £60,000.
Once you begin to draw from your pension, the event may trigger your money purchase annual allowance (MPAA) to kick in, replacing your annual allowance. This is currently £4,000 and will increase to £10,000, benefiting those who have triggered the MPAA but wish to continue to work and/or contribute more to their pension.
Whilst it remains to be seen whether these plans will drive over 50s away from the golf course and back into work (other retirement hobbies, pastimes and responsibilities are available), they certainly will have an impact to retirement plans.
These allowances are large pieces in the puzzle that is your financial plan, and the changes outlined above may allow for some flexibility, depending on your circumstances. Make sure to discuss this with your financial planner.
At Astute, we are passionate about comprehensive lifestyle financial planning, and so the expansion and enhancement of the Mid-Life MOT is welcome news. This is a good starting point for getting those in their 40s, 50s and 60s to take stock and plan for the future, to assess their health, work, skills and money, if they haven’t already.
Whilst we can give you a broad breakdown of some of the points in the budget that piqued our interest, please remember that its impact on your finances very much depends on your unique circumstances. Make sure to discuss the budget with your financial planner.
We’ll be back next week to discuss the markets, see you then.