Today’s Budget brought a generally positive reaction from Financial Planners and industry professionals, especially on pensions, but there was disappointment that many reforms would only help a minority of people.
Gavin Jones, Chartered Financial Planner at Old Mill, said generally the Budget was positive for pensions but many hoped for reforms were missing.
He said: “The fact the Lifetime Allowance (LTA) is being abolished is certainly welcome news, but as always the devil is in the detail.
“In the policy costing document, the measure removes the LTA charge from April 2023 and abolishes it from April 2024, but also caps the Pension Commencement tax free Lump Sum at 25% of £1,073,100 (£268,275) from April 2023.
“This means there will be a cap on what can be taken out of the pension tax free, with other withdrawals subject to tax, although there is still some benefit for those with protected pension pots, where the tax-free lump sum could be higher.
“There is also no mention of inheritance tax (IHT), and with the lifetime allowance abolished, the pension scheme, which attracts no IHT could be a very valuable investment. However, as with all these changes there is no guarantee, and a change of government – or indeed more small print – may mean this tax relief is also restricted, so while a welcome change, it may not be quite as good as it first appears.”
Megan Jenkins, partner at wealth manager Saltus, said: “The fact that the pension commencement lump sum remains the same means that those who are early in their careers – and early in accumulating – are still limited by what they can put into their pension. This is especially true if they are high earners and are impacted by the tapered annual allowance.
“The LTA is potentially a non-issue for people in this position and it will be interesting to see if more is done here in the future, particularly with relatively small moves in both the tapered annual allowance and money purchase annual allowance in this budget.
“That said, the revisions will undoubtedly have an impact on clients’ wider Financial Planning, but it has changed before, and it can change again. Today’s announcement doesn’t give anyone saving for their retirement peace of mind that they can make plans without having the rug pulled out from underneath them, so it is vital that savers remain mindful and continue to consider alternative tax wrappers for maximum diversification.”
Gary Smith, Financial Planning Partner at wealth management firm Evelyn Partners, broadly welcomed the measures and said the scrapping of the LTA had come as something of a surprise.
He said: “That the Lifetime Allowance was going up today, we knew: that it has been scrapped altogether is a bit of a rabbit out of the pensions hat.
“The absence of an LTA from April will return us to a state of affairs that existed until 2006 when the limit was introduced at the level of £1.5million before rising to £1.8million in 2011. The removal of the LTA marks a welcome and unexpected change of direction as the LTA had been reduced in recent years, and was scheduled to be frozen until 2026.”
“The Money Purchase Annual Allowance is back to where it was originally set at £10,000. The £4,000 limit meant that anyone going back to work after accessing their pension funds flexibly would fill the allowance with a salary of £50,000 at the auto-enrolment 8% contribution rate. “
Steve Webb, consultant at LCP, said the changes could result in a “flood” of money coming into pensions.
He said: “For more than a decade we have seen a series of big cuts to annual and lifetime limits to pension tax relief, resulting in large numbers of people being unable to save more into a pension without incurring an extra tax bill.
“Today’s Budget represents a sea-change in government policy and will set millions of people free to save more into pensions. We are likely to see a ‘flood’ of new money into pensions from higher earners. There will be an urgent need for such people to take financial advice to make sure that they are best placed to take advantage of the much more positive regime which has just been introduced – perhaps even before the start of the coming tax year and the new regime.”
Verona Kenny, managing director, intermediary at 7IM, said: “In what’s been one of the biggest shakeups in pension allowances since A Day, the Chancellor has given retirees a game-changing boost to how much they can save into their pension both annually and throughout their lifetime.
“In particular, the scrapping of the Lifetime Allowance (LTA) means that diligent retirees can now save into their pension pot without having to worry about punitive tax charges. This is great news for those who have worked hard and saved diligently throughout their working lives. Furthermore, the changes also provide an incentive for those who have stopped saving into a pension due to previously hitting the LTA to start saving again.”
Tom Selby, head of retirement policy at AJ Bell, said: “Jeremy Hunt has unveiled a pensions tax-cutting bonanza far beyond anyone’s pre-Budget expectations and the most significant retirement policy intervention since the 2015 ‘Pension Freedoms’.
“Taken together, these pension tax cutting measures amount to a colossal boost to savers and retirees and send a clear message to hard-working savers that the government is now firmly on your side.”
Lindsey Rix, Canada Life’s UK CEO, said: “I am delighted the Chancellor has hugely simplified the pension tax landscape. This is a brilliant Budget which will not only helps strengthen the UK economy, but will also boost the retirement provision of the hundreds and thousands of workers who may now be tempted back into the workforce.
“We made a clear call for an increase in the Money Purchase Annual Allowance and are delighted that the Chancellor was listening.”
