At the end of February, we ran our first Seminar of the year at Rookery Hall Hotel and what a fantastic turn out! We welcomed over 75 guests between our morning and evening sessions, which included a presentation, questions and answers and a sit-down hot and cold buffet.

David and Alex took to the stage to give an informative and insightful presentation about Applewood Independent as a company, how we can help and how you can plan for your future.

It was also a great opportunity for those attending to get to know our Financial Advisers and team here at Applewood Independent.

We have received positive feedback and have welcomed many new clients to Applewood Independent as a result of our seminars.

If you are interested in attending one of our future seminars, or for a free no obligation consultation to see how we can help you, please do not hesitate to contact us on 01270 626555.

The Chancellor’s Spring Budget has certainly attracted a lot of buzz since its announcement, with many arguing that it’s a tough sell, except to the top 1% of the population. Among the proposed changes are major reforms to the pension savings system, which could have significant implications for many individuals.

In this post, we will explore the details of these changes and help you understand how they might impact your own pension savings.

Abolition of the pensions lifetime allowance

The lifetime allowance is a limit on how much you can stash away in your pension, whether you have one pot or multiple pots. The current cap is set at £1,073,000, and your pension pot’s worth is typically checked against this limit when one of three things happens: 

• When you withdraw all your tax-free cash and start a drawdown plan or purchase an annuity.
• When you reach the age of 75.
• When you die.

If your pension savings exceed this amount, you may have to cough up a tax charge. Here’s where it gets interesting.

The lifetime allowance was previously forecast to go up to £1,500,000, but in a surprising turn of events the Chancellor has scrapped this allowance, starting from 2024. However, the current maximum limit of a 25 per cent tax-free lump sum withdrawal remains in place. It’s worth noting that you may be exempt from this limit if you have protection on the value of your pension above the current lifetime allowance.

As the dust settles on these significant changes to pension rules, it’s essential for you to seek guidance from an independent financial adviser if you’ve got pension savings approaching £1 million or more.

Changes to the contribution limit

As it turns out, the lifestyle allowance isn’t the only aspect undergoing changes. The new budget also includes modifications to the pensions annual tax-free allowance. This allowance determines the maximum amount you can save in your pension pot(s) within a single tax year before incurring tax charges. Starting from the next tax year, it will increase by 50 per cent from £40,000 to £60,000.

But there’s more. Previously, if you took money out of your contribution pension pot, you could trigger the money purchase annual allowance (MPAA) which slashes how much you can subsequently pay-in to just £4,000. However, under the new budget, the MPAA has been upped to £10,000. 

So, what does this mean for everyone?

There has been a debate over whether the new changes to the pension system in the budget will only benefit the wealthy and top 1% of the population. However, we’re not exactly sure that this is the case. 

Nowadays, pension pots of over a million pounds are a relatively regular occurrence, especially if you’re fortunate enough to have a final salary pension scheme which has been transferred out for you. These changes offer greater flexibility in managing pension savings, allowing individuals to save more. Of course, putting more into pensions and getting tax breaks for it is always a good idea!

It’s true that higher earners tend to benefit more from tax breaks than those with average incomes. But it’s worth noting that these individuals also pay a significant amount more in taxes to begin with. So, any changes made to personal allowances will ultimately affect them as well.

The bottom line

The previous MPAA allowance of £4,000 significantly impacted many people, preventing them from saving in what we believe is the most tax-efficient vehicle for savings in the UK. However, the larger, uncapped fund from 2024 is a positive development that will benefit all our clients still saving towards retirement. You can find out more about the new rules and how they will affect your retirement planning by tuning into our podcast, A Dab Of Investment. 

When it comes to addressing fiscal deficits, we recommend the removal of higher tax rate relief instead of freezing personal allowances. Although the latter hurts lower earners, higher earners who make pension contributions benefit more. On the other hand, removing higher rate tax relief doesn’t hurt lower earners. This is certainly something for the Prime Minister and Chancellor to think about!

As always, speaking directly to an independent financial adviser remains the gold standard.

If you’d welcome our input, expertise and experience, please get in touch by emailing us at alex@applewoodindependent.co.uk or david@applewoodindependent.co.uk. 

The views expressed in this article are those of the author and do not constitute financial advice. Applewood Independent Ltd is authorised and regulated by the Financial Conduct Authority. For financial advice designed for you and your specific circumstances, please contact the author using the contact details provided in this article or, alternatively, contact the Applewood Independent Ltd office on 01270 626555.

The value of your investment can go down as well as up, and you may not get back the full amount invested.

Past performance is not a guide to future performance.

After presenting a Budget-in-all-but name with the Autumn Statement, the Spring Budget was delivered against the backdrop of a day of widespread industrial action. The run-up to the event appeared deliberately downplayed, save for a late flurry of leaks highlighting a focus on childcare at one end of the scale and pensions at the other. While acknowledging the Prime Minister’s two objectives of halving inflation and reducing debt, Mr Hunt focused his Spring Budget on the Prime Minister’s third objective – getting the economy going.

In a wide-ranging and longer than usual speech, there were some key headline items:

• The inflation rate is forecast by the Office for Budget Responsibility to fall from 10.1% (January 2023) to just 2.9% by the end of 2023.
• The lifetime allowance for pensions will be abolished from April 2024, with the lifetime allowance charge withdrawn from April 2023.
• A new monetary limit for the tax-free pension commencement lump sum will be introduced for 2023/24 of £268,275 (equivalent to 25% of the current standard lifetime allowance).
• The annual allowance for pensions will increase by 50% to £60,000 from 2023/24 and the money purchase annual allowance will rise from £4,000 to £10,000 from 2023/24.
• Companies investing in new plant and machinery in the three years from 1 April 2023 can claim a first-year allowance of up to 100% of expenditure.
• Small and medium-sized enterprises that spend 40% or more of their total expenditure on research and development can claim a tax credit worth £27 for every £100 they spend from April 2023.
• The energy price guarantee is maintained at the current £2,500 level until the end of June 2023.
• Up to 30 hours of free childcare per week will be available to working parents of children from the age of nine months by September 2025. Initially, from April 2024, working parents of two-year-olds will be able to access 15 hours of free childcare per week.
• The scheduled 11p a litre duty increases in petrol and diesel will not go ahead.

As ever the Budget documentation contained a wealth of detail and much to digest, our Budget Summary highlights the key aspects likely to affect you. If you have any questions about what you should do next, please get in touch.