Today Chancellor Jeremy Hunt delivered his first spring budget. From news of the lifetime allowance being abolished and the annual pension allowance rising, to new childcare cost measures for working parents, Hunt laid out his plan to tackle sky-high inflation, reduce debt and ‘get the economy growing’.
Here are some of the main takeaways from the spring budget and what it could mean for you and your money.
Key takeaways:
- The lifetime allowance, previously set at just over £1.0731m, will be abolished.
- The pensions annual tax-free allowance will increase from £40,000 to £60,000.
- The Money Purchase Annual Allowance (MPAA) will increase to £10,000.
- Hunt also announced that 30 hours of free weekly childcare is being extended to cover children below three. It will eventually cover all children from the age of nine months but only apply to households where both parents are working.
- Introduction of ‘Returnerships’ – a new offer targeted at the over-50s, which brings together existing skills programmes, supported by £63 million of additional funding.
- The government will also increase the number of 50+ Universal Credit claimants who receive mid-life MOTs from 8,000 to 40,000 a year.
- Corporation tax will increase from 19% to 25% from April onwards.
- Fuel duty will be frozen, with the 5p cut to be maintained for the next 12 months.
This article isn’t personal advice. Investments can fall as well as rise in value, so you could get back less than you invest. If you’re unsure what’s right for your circumstances, ask for financial advice.
Pension, ISA and tax rules can change, and benefits depend on individual circumstances.
Retirement relief – the lifetime allowance abolished
Helen Morrissey, Head of Retirement Analysis
Key retirement takeaways:
- In today’s budget the chancellor has announced the removal of the lifetime allowance charge from 6 April 2023, while the lifetime allowance itself will be abolished in April 2024.
- The annual allowance will also increase from £40,000 to £60,000 per year from 6 April 2023.
- Money Purchase Annual Allowance will be increased from £4,000 to £10,000 from 6 April 2023.
- The upper limit on tax free cash (also known as pension commencement lump sum – PCLS) will be capped at 25% of the current lifetime allowance except where protections apply. From 6 April 2023 it will normally be limited to £268,275.
- The adjusted income level required for the tapered annual allowance to apply to an individual increases from £240,000 to £260,000, and the minimum amount they can be tapered to will also increase to £10,000, from 6 April 2023.
It was a game changing budget for pensions. Chancellor Jeremy Hunt’s decision to effectively abolish the lifetime allowance and boost annual allowances from 6 April 2023 brings a breath of fresh air to those whose retirement planning has been stifled by years of tax cuts and freezes.
The constant tinkering and reductions in both allowances have acted as a real disincentive for higher earners to save into a pension over the years. The biggest unintended consequence of the rules saw senior NHS professionals choosing to retire early in recent years because of the tax charges they were triggering.
The changes bring significant headroom back into the retirement plans of people who might have taken a step back from pensions for fear of breaching these allowances. However, they also simplify things for everyone.
Lifetime and annual allowance spring budget changes – what they mean for you
Childcare changes are big for parents and businesses
Susannah Streeter, Head of Money and Markets
Funding for 30 free hours of childcare for working parents with children aged 9 months to three years was the big cuddly rabbit Jeremy Hunt pulled out of the hat for parents struggling with childcare costs.
This could transform the finances of parents, and should help stop them leaving the workforce or dramatically cutting hours because the cost of childcare is so painful. This will be introduced gradually, but will be fully in place by September 2025. This could also be a game-changer in terms of increasing the UK’s growth prospects.
Hunt countered criticism of schemes putting the sector under impossible pressure by cutting staffing ratios from 1:4 to 1:5. It remains to be seen whether this will be enough to enable nurseries to offer the places at a profit, but on the face of it they look like positive steps.
There’s also a tweak to childcare support through Universal Credit. At the moment, people have to fork out hundreds of pounds to pay for care in order to go back to work – and they don’t get reimbursed for weeks. In future, the support will come up-front, so parents don’t need to go into debt.
Plus, for older children, there’ll be more funding for wraparound care in primary schools, with the aim that all parents will be able to drop children off from 8am to 6pm by September 2026.
Duties – phew for fuel and cheers for pints
Sarah Coles, Head of Personal Finance
Duties are one area where the government can raise or cut prices at a stroke, so it’s heartening to see they’ve stepped in on behalf of drivers. Frankly, after such a long freeze of fuel duty it would’ve been a surprise if they had raised prices right now.
Hunt also decided to extend the 5p duty cut that was due to come to an end for another year. Petrol prices have fallen back significantly from the peak. They’ve dropped from a high point of over £1.91 per litre in July to around £1.48 today – similar to the level we saw about a year ago.
However, it’s still way ahead of the levels we saw just before the pandemic, of around £1.25. It would’ve been difficult to convince drivers that now was the time to add another 5p on top.
The tax on alcohol will rise in August. However, there’ll be a separate rule for draught beers in pubs, which will mean the duty on draught pints is up to 11p lower than in supermarkets.
There’s also the hope that the delay in rising duty will protect the nation’s drinkers while inflation is so high, and only kick in when it‘s started to fall back.
For smokers, the pain will be immediate. The duty on cigarettes will rise by RPI plus 2%, which is almost 15% and could add up to £2.30 to the price of a large pack of cigarettes.
Article image credit: Carl Court / Getty images.