What the Budget means for you - March 2023
The Chancellor Jeremy Hunt delivered his Budget this week, with some radical changes made to pension allowances, along with several measures aiming to get more people working.
Dubbed the ‘back to work’ Budget, many of the measures announced were designed to encourage over-50s who have retired early back into the workplace, along with parents who might be unable to work because of steep childcare costs.
However, as with all Budgets, the devil is in the detail, and several of the changes unveiled either primarily benefit the very well off, have various restrictions, or won’t come into effect as quickly as many would like.
Here, we explain what you need to know about some of the main measures announced.
The Chancellor announced that the lifetime allowance charge will be removed from April 2023, with the lifetime allowance being entirely abolished from April 2024. The lifetime allowance, currently £1.073m, is the limit on how much you can build up in pension benefits over your lifetime without incurring a tax charge.
He also confirmed that from April 2023 the annual allowance, which is the most you can save into pension in a tax year whilst still benefiting from tax relief, will increase from £40,000 to £60,000.
James Kirkup, director of the Social Market Foundation, said: “Abolishing the lifetime allowance will cost the Treasury around £2.75 billion over five years, while benefiting only the small group of workers fortunate enough to have pension pots worth more than £1 million.
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“Most of those workers are doctors, so this might help with NHS staff retention, but it’s a lot of money to allocate to a small number of people with huge pensions – at a time when the Government’s own figures show more than 12 million people aren’t saving enough into pensions to deliver a decent retirement.”
Changes have also been made to the Money Purchase Annual Allowance. This currently reduces the standard annual allowance to as little as £4,000 for those who have started taking taxable income from pension pots that remain invested, but from April the MPAA will rise to £10,000.
Rob Morgan, Chief Investment Analyst at Charles Stanley said: “The increase in the MPAA to around £10,000 from next tax year (2023/24) could make a real difference to those who have dipped into their pots to combat cost-of-living challenges and could help encourage some retirees back into work.”
Help with childcare and ‘returnerships’
The Chancellor’s other big ‘rabbit out of the hat’ was more help for parents struggling with childcare costs, although most of the changes announced won’t come into effect until after the election. He pledged that in future the government would fund 30 free hours per week for working parents with children aged nine months up to 3 years old in England. Currently only children aged three and four benefit from 30 hours free childcare.
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From April 2024, working parents of two-year-olds will be eligible for 15 hours of free childcare per week, and this will be extended to children aged from nine months to three years from September 2024. Parents with children aged from nine months to school age will benefit from 30 hours free childcare a week from September 2025. People earning over £100,000 won’t qualify for the childcare giveaway.
Tracy Crookes, chartered financial planner at Quilter, said: “The hope is that the extension of this scheme to younger years will get people back into the workforce, however, it should not be forgotten that the 30 hours free childcare only runs during school term time – which effectively means it becomes a 22 hours free childcare scheme for working parents. They are simply left to fill the rest of the gap either from their own pocket or by giving up some element of employment. Furthermore, not all parents are aware that the free childcare hours does not include food, nappies or other provisions, so the costs still rack up.”
The Chancellor also recognised the need to encourage ‘experienced workers’ who currently aren’t working back to work through the introduction of apprentice-style ‘Returnerships’.
Alan Price, chief executive of BrightHR said; "Employers should also recognise that the wants and needs of over 50s may vary from younger workers, so put measures in place to directly meet their expectations. For example, they may be more in favour of part-time and job-sharing arrangements; phased retirement options; enhanced family-related leave and pay, including grand-parental leave; private health schemes; and increased pension contributions. “
The government’s energy price guarantee will be extended for a further three months until the end of June, the Chancellor said, which will limit energy bills for a typical household to £2,500 a year.
However, there will no longer be a £67 a month rebate from the government to help cover costs.
Sarah Coles, head of personal finance at Interactive Investor, said: “The shelving of the planned rise in the energy price guarantee will come as an enormous relief for the millions of people who are already struggling to pay their bills, However, plenty of people are already struggling and will need to cope with the loss of their monthly rebates too from April.
“The more positive news is that when wholesale prices fall enough to take the energy price cap below £2,500, we will revert to that instead, so our bills will fall. At the moment, this is expected to happen in July, when the cap is forecast to be £2,100.”