Budget bolt
from the blue

Nicola Stone / March 2023

Budget bolt from the blue

17 March 2023

A complete abolition of the Lifetime Allowance probably wasn’t on most bookies’ prediction list for yesterday’s Budget announcement, but Jeremy Hunt has confirmed that the charge for taking benefits in excess of the standard Lifetime Allowance will be scrapped from 6 April 2023 and the Lifetime Allowance itself will disappear completely from 6 April 2024.

Whilst the main implications of this change really only impact the very top earners, as communications providers who want to engage all savers, we need to be thinking about the majority of scheme members and what it means for them.

We’re still very much in the depths of a cost-of-living crisis. Our recent messages have had to address members considering reducing their contribution rates or choosing to opt out of pension saving altogether. With average pension pot sizes for those aged between 16 and SPA sitting below £30,000 [1] in 2020, it’s important to remember that this change will not be significant for most members. In fact, in this kind of climate, issuing blanket comms over the removal of a tax charge that will only affect the top 1% risks alienating many who are struggling and reinforces the message that saving for retirement is something for the wealthy.

Targeting and tailoring your message to your audience is key in this situation, so think carefully before you devote a two-page splash in your newsletter to the LTA.

There are, of course, some other benefits for members and providers that shouldn’t be underestimated. We’ve all seen the unwieldy Lifetime Allowance forms required as part of the retirement process which soon can be removed altogether, making the retirement journey much easier for all members.

And then there’s the increase in the Money Purchase Annual Allowance from £4,000 to £10,000, which generated fewer headlines but is arguably more applicable to more people. It will allow those individuals that wish to flexibly or partially retire, but continue working and contributing to a DC pension scheme, to have greater limits before tax is applied.

The main Annual Allowance is also increasing by 50% from £40,000 a year to £60,000. Whilst it immediately only seems to be of use to the highest earners, if we circle back to the current economic climate, there is the very real possibility that some members could be receiving redundancy payments which may be able to boost their retirement income without being subject to as much tax as expected.

We’ll be watching closely for any further announcements and in the meantime will be investing in a decent shredder for all that Lifetime Allowance paperwork!

[1] See Saving for retirement in Great Britain - Office for National Statistics (ons.gov.uk)

Nicola is a Lead Consultant within Sparks and comes from a technical background