Chancellor Jeremy Hunt has presented the UK Budget this week, with a range of measures to support the UK economy and encourage investors.
This Budget will be of particular interest for those investors with the long-term goal of retirement, with several positives relating to your Pension.
What’s changed relating to your Pension?
The key change for investors is the Pensions annual tax-free allowance increasing from £40,000 to £60,000 from 6th April 2023.
In a further boost for investors, it was announced that the Lifetime Allowance is to be abolished – from April 2023 onwards there will be no penalty for exceeding the Lifetime Allowance, and it will be abolished from April 2024. This was previously set at £1.0731 million, however it’s important to note that the entitlement to tax free cash will be frozen at the lower of 25% of your pension fund or £268,275 even when the Lifetime Allowance is abolished.
Both these measures will be welcomed by investors, allowing them to invest more into their Pensions and benefit from tax efficiency.
There was also a change with the Money Purchase Annual Allowance, up from £4,000 to £10,000. This is the amount you can put into your Pension once you’ve already flexibly accessed your pension by drawing income. This is further good news for investors looking to do more with their money in a Pension. The return of the Money Purchase Annual Allowance to its £10,000 limit will be welcomed by those who need to go back to work and give their pension pots an extra boost and for those who have accessed their pension whilst working.
Commentators have described today’s changes as a “back to work” budget, and these measures will be seen by the Government as a way of incentivising older workers to stay in employment. By scrapping the limit on tax free Pension savings there’s a stronger opportunity for investors to stay invested and continue to invest into their Pension.
Inflation to fall to 2.9% by end of year
On the markets and economy, the Chancellor delivered positive news on inflation, with a forecast that the inflation rate will fall to 2.9% by the end of this year, down from 10.7% in the last three months of 2022.
This may ease what is perceived as a cost of living issue in the economy. To learn more about the economic outlook, subscribe to the True Potential YouTube Channel, where our Investment Management team deliver daily Markets updates.
Future growth expectations
In a further positive for what investors could expect this year, the Chancellor forecasted that the UK will avoid recession this year and experience 1.8% growth in 2024, 2.5% growth in 2025, and 2.1% growth in 2026.
The Chancellor has described the UK economy as “proving the doubters wrong.”
What the budget means for businesses
The Budget has increased Corporation tax from 19% to 25%, which is paid by businesses on taxable profits over £250,000. Companies with profits up to £50,000 will pay 19% and profits between £50,000 and £250,000 will be tapered 19% and 25%.
True Potential’s reaction to the Budget
Jamie Sexton, True Potential Director of Client Servicing, reacted to the news on the Lifetime Allowance:
“Abolishing the lifetime allowance is a welcome and long overdue step towards simplifying pensions. It means savers keep more of their hard-earned money and allows them to invest more for their futures. However, with the state pension age review later this year, which could see rises brought forward, there is more the government needs to do.
Our research shows that trust in the state pension is eroding, with almost a third (30%) of 25-49 year olds saying they do not believe they’ll get a state pension when they retire. The Government needs to massively incentivise savings for all.
We’d like to see them scale up the contribution rate for auto-enrolment pensions in the next few years from 8% to at least 12% or risk the next generation of retirees facing a shock when they realise they can’t afford to retire.”
Please Subscribe to the True Potential YouTube Channel to learn more about the Budget and our thoughts at True Potential. This week’s Do More With Your Money show will be a UK Budget special, and featuring on the panel will be our Chief Investment Officer Jeff Casson and experts from within True Potential.
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