2023 spring budget look ahead – what could we see?

Speculation has reached fever pitch that we’ll see enormous hikes in the Lifetime, and possibly Annual pension allowances, in tomorrow’s budget. There are reports:

• The Annual Allowance, how much can be contributed to a pension each tax year, could be increased from £40,000 to £60,000.
• The Lifetime Allowance, the total amount you can build up in all your pensions over your lifetime without incurring a tax charge, could rise from £1.07m to as much as £1.8m.

After years of cuts and stagnation, these changes would breathe new life into people’s retirement planning.

We take a look at what’s been rumoured so far, and what we’d like to see changed. These are just our thoughts and may or may not happen. This article isn’t personal advice, if you’re not sure what’s right for your circumstances, ask for financial advice.

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What other changes are expected in the budget?

Energy bill support

We could also see more support with energy bills. Almost half of us (47%) are finding it difficult to pay our energy bills. But for 6% of people, things have become even worse – and they’ve fallen behind. In January around 9,500 people approached Citizens Advice for help with fuel debts – a number that has doubled in four years.

The government could halt the rise in the energy price guarantee from £2,500 to £3,000. Alternatively, it might choose to offer more targeted help – whether that’s through short-term lump sums, or introducing a social tariff for those who need it most.

No extra costs for petrol prices

There’s likely to be another freeze in fuel duty. This has been held since 2011, so it would be politically difficult to hike at this stage. And although prices have come back from the peaks, it’s still incredibly expensive to fill up at the pumps.

The 5p per litre cut introduced last April is also expected to come to an end this month, so Hunt might choose to extend it. A lot will depend on just where else the government needs to spend this money.

What changes we want to see

Remove the Money Purchase Annual Allowance

Helen Morrissey, Head of Retirement Analysis

Sharp increases in the Lifetime and Annual allowances would be good news for pensions but we think the government needs to go further with a wider ranging review of how pensions tax works. The government is keen for people to return to work, and those who face rising costs in retirement could be keen to come back too. However, if they’ve accessed their pension, rules around how much they can contribute to rebuild could put them off.

The Money Purchase Annual Allowance (MPAA) restricts those who have already accessed their pension to contributions of just £4,000 per year. This needs to be increased significantly, or ideally removed, as part of a wider review of pension tax relief to give people a better chance of rebuilding their pensions.

It was introduced to stop ‘recycling’, where people access their pension and then re-invest contributions for another round of tax relief. But the same thing could be achieved with anti-recycling rules, which only kick in when someone has accessed their pension with the express intent to recycle the cash.

Remember, pension and tax rules can change, and benefits depend on your circumstances. You also can’t normally access your pension until at least 55 (rising to 57 by 2028).

Lay firm plans for growth

Susannah Streeter, Head of Money and Markets

Jeremy Hunt laid out the bare bones of a plan for growth in January. But this needs to be fleshed out with a lot more detail about where the funding will come from.

Competition for inward investment is heating up with subsidies on offer from nations elsewhere in the world. It’s crucial that the gleaming nuggets of potential in innovative industries like renewables, AI and life sciences are nurtured. We need fresh new incentives to make sure the UK can take competitive advantage of its leading positions in these fields.

Other goals to improve education and employment will require significant new funding to really move the dial. Improving literacy and numeracy won’t be easy when mass teachers’ strikes have been taking place over pay and conditions. Clearing NHS backlogs will also prove increasingly difficult if health care workers stage fresh walkouts.

The £5.4 billion surplus in government finances announced in January should give more room for manoeuvre when it comes to finding a compromise on public sector pay demands. The announcement of deals in the budget would certainly grab the headlines.

Streamline the range of ISAs

Sarah Coles, Head of Personal Finance

We need a balance between offering enough choice for people to find an ISA that suits them and providing so many options that it’s difficult to choose.

One way that makes sense is to combine some of the many options out there. Child Trust Funds could be rolled into Junior ISAs, Help to Buy ISAs into the Lifetime ISA, and Innovative Finance ISAs into Stocks and Shares ISAs.

In the case of Innovative Finance (IF) ISAs, one reason they’re separate is because you can only open one of each type of ISA each tax year. The government didn’t want people to be forced to choose between peer-to-peer loans and stocks, so they created the separate IF ISA. It means you can use the IF ISA for a small peer-to-peer investment and get a separate Stocks and Shares ISA for the rest of your ISA allowance.

If you rolled them in together, under the current rules you’d need to pick one or the other. This could be solved by allowing people to contribute to as many ISAs of the same type as they like in each tax year – as long as they stay within the annual limit.

Improve the Lifetime ISA

Helen Morrissey, Head of Retirement Analysis

The 25% bonus of up to £1,000 a year that comes with adding money into a Lifetime ISA is very attractive. However, if money is withdrawn before 60 for a reason other than to buy a qualifying first home, you face a 25% penalty – which not only claws back the government bonus, but also applies an additional penalty.

It’s unfair to penalise people who are trying to do the right thing by building savings, particularly when times are so tough. We want to see the Lifetime ISA penalty reduced to 20% permanently.

The £450,000 cap on the value of a first home for the LISA hasn’t changed since the product was introduced six years ago. And if you want to use money in a LISA to buy somewhere more expensive, you’re again hit with a 25% penalty. We want to see the cap increased in line with house price growth.

Meanwhile, the sharing of the LISA and ISA allowance is one the single biggest causes of confusion among people considering a LISA. It can create unnecessary administrative complexity for savers and providers. Separating the two allowances would solve this at a stroke.

Tax rules change and benefits depend on individual circumstances. Unlike the security offered by cash, investments can fall as well as rise in value so you could make a loss.

Don’t miss the beat on the budget

Hopefully we’ll see lots of the below changes in Jeremy Hunt’s spring budget next week. But there’ll be a lot more than this and we’ll be covering what the biggest changes mean for your money.

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Article image credit: Andrew Aitchison / Getty images.