Reading time: 4 minutes

How will the Budget 2021 impact my retirement strategy?

As expected, the Budget 2021 was dominated by the continuation of various emergency support schemes for UK businesses.

Organisations – particularly those within the hospitality, retail and leisure sectors – have been hit incredibly hard by the pandemic. So, further support offered by the Chancellor will be instrumental to their post-COVID survival.

However, such schemes come at a cost. The furlough scheme alone has cost the Government £53.8 billion so far. And with other measures such as extensions to the business rates and VAT holidays also announced on Wednesday, it is highly likely that the bill for post-COVID recovery will continue to climb.

This meant that the Chancellor was forced to direct some of his attention to the issue of paying for these expensive, yet necessary, actions. Resultantly, it seems that some of the burden is being placed on pension planners.


Freezing the lifetime allowance

Prior to this year’s Budget, our executive chairman, Andrew Megson, wrote extensively in publications such as Professional Paraplanner and Open Access Government, urging the Chancellor to rethink potential plans to tweak with existing pension policy. He stressed that doing so would deter people from effectively saving for their retirement.

Consequently, he, along with many of his colleagues within the pension industry, expressed disappointment at the Chancellor’s decision to freeze the lifetime allowance at £1,073,100 until April 2026.

This freeze stops Britons from saving more than £1,073,100 into their pension pot over their lifetime. If they breach the threshold, they could incur hefty charges.

Exceeding the allowance could result in savers being charged up to 25% if they are accessing their money via an annuity or income drawdown. Charges could reach as high as 55%, if people are taking out a lump sum from their pension pot.

It is estimated that the Chancellor’s decision could force 10,000 pension savers over the threshold and lumped with additional fees. This could prove to be extremely lucrative for the Government; it is expected that the lifetime allowance freeze would raise £990 million.

This freeze has the potential to discourage people from saving for their retirement altogether. Indeed, this could leave future generations retirees with insufficient funds to live off. As such, many within the pension industry hope that this policy is reviewed and reversed in due course.


Other changes

Despite the lifetime allowance freeze, the Chancellor refrained from changing the core pension tax relief system or cutting the state pension triple lock – as was rumoured prior to the Budget.

This move signified that, at least for now, the Government is keen to offer some security to pension planners and vulnerable retirees.

However, further changes could be on the horizon. Indeed, the Government is set to publish a range of tax consultations and calls for evidence on 23rd March. This could suggest that the affordability of the generous pension tax relief could be called into question.

Such news will be unnerving for savers, who have developed their retirement strategy with the assumption that they will receive top-ups from the Government.

However, it is vital for Britons to remember that they needn’t struggle to reorganise their retirement finances alone.


Ask for help

The changes driven by the Budget 2021 will undoubtedly impact many people’s retirement plans. So, those worried about their financial futures should seek independent financial advice as soon as possible.

Advisers will take into account the lifetime allowance freeze, potential changes to pension tax relief, and an individual’s financial situation and help savers to rework their retirement strategy to suit their needs. It will certainly offer some peace of mind throughout this particularly volatile time.

The Chancellor’s Budget, whilst generous for UK businesses, is unlikely to be welcomed by retirement savers; particularly when further changes to pension tax relief could be just around the corner.

Therefore, it is vital that those concerned seek independent financial advice. Doing so will help Britons to counteract the negative implications of changes could have on their pension and help them plan for a financially secure retirement.