Speaker  : Order ! Order! The Chancellor of the Exchequer is still speaking!

Jeremy Hunt : and for my next trick I will saw Suella Braverman in half

You have to give him this, the “I’m not going to increase the Lifetime Allowance, pause, I’m going to abolish it” was delivered well, and on social media the pension world went into meltdown.

Important Point : if your benefits are in excess of the Lifetime Allowance and you have applied to draw benefits and were expecting to draw before 6^th April, it is vital to ask your pension provider if they can delay until at least 6^th April

Ostensibly this all sits in the how to get people to keep working and ideally get some of those who stopped working to come back to the workforce section of the Budget.  The thing is, if that is the case, it’s actually not going to be very effective.

If someone has already retired and drawn their pension then they probably did so because they realised they could afford a lifestyle that they were comfortable with based on the pensions and assets they had already built up.  To suggest they may be enticed back into the workplace by a purely monetary incentive shows a lack of understanding of how most people think and feel. 

The NHS got special mention, as the largest employer in the country, with the implication being that this will solve the problem of NHS consultants choosing to retire early.  However, although the Lifetime Allowance may have had some bearing on the decision, the main drivers have been aspects of the way the old (95) NHS pension scheme doesn’t reward working past age 60 and the Annual Allowance, which is both complex and viewed as unfair in lots of ways.

There was movement on the Annual Allowance also, increasing the maximum amount that can be saved into pensions each year with full tax relief from £40,000 to £60,000, adjusting the earnings calculations that then reduce that allowance so they only really bite for those with earnings above £260,000pa and increasing the minimum that the allowance can drop to back to the £10,000 it used to be.  This is more likely to help with the retention that the Government is looking for however, does keeping the bit that is particularly complicated and seen as having numerous unfair angles whilst scrapping the simple bit really help persuade people to change behaviour?  I’m not convinced.

What wasn’t part of the speech but is in the Budget documents is that the tax free cash that one can take from pensions is going to continue to be capped.  It will remain set at 25% of the current £1,73,100 Lifetime Allowance and will be “frozen” at that level – yup, the word used is frozen.  So you will be able to take 25% of your fund subject to a frozen maximum monetary amount; an amount that if it remains frozen will fall in real terms; a fixed amount which can in future be more easily changed than it can at the moment when it is 25% of a Lifetime Allowance.

The exception to this is where you have an earlier Protection (i.e. Fixed Protection 2016) which meant you retained a higher tax free cash figure.  This higher figure remains, although the Protection itself is made redundant when the Lifetime Allowance is removed.  What isn’t entirely clear is whether you can still keep it if you now make further contributions.

NOTE : 16/03/23 Pension Scheme Newsletter confirms that lump sum Protection will not be lost if further contributions are made

Real care is still needed because on 6^th April 2023 the Lifetime Allowance will still exist, it is just the tax charge for having an excess is removed.  Removal of the Lifetime Allowance itself will come with further legislation so may not actually be removed until 6^th April 2025.

All of this (and more) keeps financial planners busy however, it is worth remembering that in the most recent ONS data published in July 2022, the median undrawn pension fund in March 2020 for those aged 55 to 64 was just £107,300, the median personal pension being actively funded was £52,000 and the median fund in payment was around £400,000 (they split the age bands differently).  With the average contribution to a personal pension including employer contributions being not much more than the 8% minimum and only 57% of those aged between 16 and State Pension Age contributing to a pension, these are measures that are aimed at a very small percentage of the UK population.