Managing finances

Our Spring Budget analysis

By Alfie Mullan

Posted 9th May 2023

Reading Time: 6 Minutes

Cogs with pound signs inside

Some of you joined Alfie and Woods Mullan and their discussion on the implications of the Spring Budget late last month. We plan on running more discussions like this – and were really pleased with how it went.

Many of you have been in touch to say you couldn’t make the discussion but asked for a recording. 

You’ll find the recording below and a summary of the key points discussed beneath the video.

In this video and article, we’re talking generally about the changes introduced in the Spring Budget. You shouldn’t take any action without consulting directly with your Financial Planner so your individual circumstances and financial plan are taken into account. 

Spring Budget 2023

Alfie and Woods discussed the Spring Budget 2023, highlighting the significant changes that could impact financial plans. The discussion focussed on the pension changes, which include the removal of the lifetime allowance, an increase in the annual allowance to £60,000 per year, and an increase in the money purchase annual allowance to £10,000 from £4,000. Additionally, there is an increase in the amount of adjusted income at which the pension taper applies to the annual allowance from £240,000 to £260,000. The team also discussed the reduction in the capital gains tax allowance and changes to tax brackets. 

Is immediate action necessary?

The financial planning world is still digesting the proposed changes made to pensions legislation six weeks ago and the government has not yet properly passed the legislation through Parliament. 

As a result, it is advisable to be patient and wait for the bill to be passed before taking any action. 

The changes offer more opportunities for people to tweak their plans, but they do not require drastic alterations. 

A balanced approach should be taken to ensure that overall financial plans are set up flexibly to weather potential storms from legislative and tax changes in the future. 

Financial planners should continue to use all tax-efficient allowances wherever possible. 

The focus should be on multi-decade time horizons and not reacting too quickly to government changes.

Who benefits?

The recent changes to the UK pension system are expected to benefit many people, particularly those who were impacted by the tapered annual allowance or had reached their lifetime allowance limit. 

With the removal of the lifetime allowance, those who had previously reached the limit can now potentially add money back into a defined contribution pension. 

High earners who were impacted by the tapered annual allowance will also benefit from a potentially increased annual allowance. 

However, non-earners who were previously limited to contributing £3,600 per annum to a pension will not see any change. Similarly, those who are in the decumulation phase without surplus income or capital will not be impacted. 

Overall, these changes could provide greater flexibility and opportunities for individuals to save for their retirement.

Audience questions

Alfie and Woods then answered questions from the audience. Once more, a quick reminder – the answers to these questions may not be advisable for your specific set of circumstances. We’d recommend seeking expert advice from a financial planner before taking any action.

  • If someone has taken one of their pensions and used 97% plus of their lifetime allowance, when can they take the remaining pension? It can be done straight away, but it is advisable to wait until the legislation and changes proposed in March have passed through Parliament in the finance bill that should come in July.
  • Can someone add to any of their pension pots now that the cap has been removed? Yes, it is possible to add to pensions almost immediately, but it needs to be within the realms of their relevant earnings. Even without any relevant UK earnings, you can still contribute £3,600 gross into a pension, while still receiving tax relief on the contribution from the government.
  • What happens to previous lifetime allowance protections and duties? The main protections that are impacted are Enhanced Protection and Fixed Protection. With the maximum tax-free cash being limited to 25% of the lifetime allowance as at the time of the Spring Budget, having these protections in place could mean you have a higher tax free cash entitlement. In addition, for individuals who registered protections by 15 March 2023, you are now able to make new pension contributions without losing this protection
  • What do the changes in pension regulations mean for clients who are no longer accumulating and does it change the order in which one would draw from their investments? The order in which one would draw down on their investment wealth in the accumulation phase remains the same. Defined contribution pensions are generally the last pot of money to draw on due to the fact that they are classed outside of the state from an inheritance tax perspective, potentially saving up to 40% inheritance tax. However, the order may change depending on the individual case and ensuring that they are optimising tax allowances each tax year. It is important to note that pension contributions cannot be made as an inheritance tax planning tool, but rather the death benefits of the pension are favourable towards inheritance tax. The general order in which assets are liquidated is cash first (excluding emergency cash buffer), then non-tax protected investments, ISAs, and pensions. This may not be relevant for everybody and is dependent on their specific circumstances.
  • What would happen if the Labour party comes into power and undoes all the changes made by the current government? It’s impossible to predict the future, and the events of the past few years have shown that. Instead of trying to second-guess the future, it’s better to hedge your bets, spread things out, be flexible, and stick to what’s always worked. We’d advise keeping things simple, having enough cash in an emergency buffer, investing in equities i.e. the great companies of the world, using tax efficient allowances where possible, and updating your financial plan annually to adjust to reality. Ultimately, financial plans are forecasts of the future, and they are bound to be incorrect. You can control the present and enjoy spending your money.