Spring Statement 2023
- Bella Edmunds
- 15 March 2023
- 10 mins reading time
On Wednesday 15 March, Chancellor Jeremy Hunt delivered his Spring Statement, the second fiscal package of his tenure. The cost of living crisis is still gripping UK households as inflation remains stubbornly high above 10%, and although the UK’s economy missed falling into recession in the latter half of 2022, economic growth for the fourth quarter of 2022 was flat(1).
Against this backdrop, it was always going to be a tricky statement for Mr Hunt, as consumers still need help with the cost of essentials, and the continuing strikes across many industries show that workers are not happy with levels of pay. Yet, raising taxes to pay for cost of living help, public sector pay increases and much-needed spending on public services such as health and schools, would have proved unpopular.
We look specifically at the announcements that will affect those planning their retirement
Changes to the pension lifetime allowance and annual cap
The annual cap on pension contributions is being increased from April, this is the amount a worker can save into their pension in a tax year without paying any tax. Currently at £40,000, it will increase to £60,000.
The lifetime allowance for pensions is the limit you can save across all of your pensions (excluding your State Pension) without being taxed. It currently sits at £1,073,100, and was widely expected to be raised significantly; however, the Chancellor went a step further and abolished the pension lifetime allowance.
The increase in the annual cap and the abolishment of the lifetime allowance are good news for those with the ability to pay more into their pensions and looking for a tax-efficient way of doing so.
State pension age
The current state pension age is 66, due to increase to 67 between 2026 and 2028, and then to 68 between 2046 and 2048. It was anticipated that the phasing in of increases to the state pension age could be brought forward; however, there was no mention of this in the statement.
Any changes to the state pension age would mean that millions may have to delay retirement, and also mean a review and possibly adjustment to their current retirement planning.
It’s not only direct pension-related announcements that affect those planning for retirement
Income tax
There are no changes to income tax bands, or the personal tax-free allowance, from the Autumn Statement in November last year. With many workers receiving annual salary increases at the start of the year, this will be disappointing news, and could mean many are effectively dragged into a higher tax band, thus reducing their income and ability to save.
The reduction in the highest rate tax band of 45% will go ahead in April, falling from the current £150,000 annual salary, to £125,140. This is estimated to result in a quarter of a million workers paying more tax(2).
Capital gains tax and dividend income tax
The significant cuts to tax-free allowances for capital gains tax and dividend income announced in the November statement to take effect over the next two years are to go ahead from April. This could have a big impact on those planning to sell property assets (or other large-value assets such as antiques, fine art or vintage wines) in the next couple of years to fund their retirement.
It could also affect those further away from retirement who are invested heavily in shares of companies to save for their retirement. However, there are ways you can continue to invest in shares without being affected. There is no tax payable on dividend income from shares held in pensions, stocks and shares Individual Savings Accounts (ISAs), junior ISAs or lifetime ISAs. There were no changes announced to the limits that currently apply to ISA savings amounts.
Richard Allan, Financial Planning Director, Schroders Personal Wealth, shares his view on what the Spring Statement means for those planning their financial futures:
“The previously announced changes to income tax bands and personal allowances for capital gains tax and dividend allowance have been published since last November, and so we have been able to reflect on these with our clients. These changes will impact most of our clients who have income or assets, by increasing the tax payable from April 2023. The announcements today to increase the annual allowance and abolish the lifetime allowance for pension savings have generally been welcomed as this has gone someway to help reduce the potential tax burden. By allowing the possibility for higher annual pension saving and putting no limit on the amount that can be accumulated without incurring any tax, this helps clients and advisers planning for both immediate and long-term goals.”
If you are unsure how the Spring Statement will affect your retirement, why not book a free consultation with one of our advisers? If you already take financial advice – is it time to check back in to see if your plans are still on track? There are no hidden fees or charges, and you’ll only pay if you choose to go ahead with the recommendations in your personalised financial plan.
Sources:
(1) Gross Domestic Product (GDP) - Office for National Statistics (ons.gov.uk)
(2) Spring Budget 2023, www.which.co.uk 6 March 2023.
Important information
The retirement benefits you receive from your pension plan depend on a number of factors including the value of your plan when you decide to take your benefits which isn’t guaranteed and can go down as well as up. The benefits of your plan could fall below the amount(s) paid in.
The value of investments and pensions and the income from them can fall as well as rise and are not guaranteed. The investor might not get back their initial investment.
Tax treatment depends on the individual circumstances of each client and may be subject to change in the future.
Cash savings and investments are protected to the value of £85,000 per person per institution by the Financial Services Compensation Scheme (FSCS). However, the value of investments may fall as well as rise.
Any views expressed are our in-house views as at the time of publishing.
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