On Wednesday (15 March), Chancellor Jeremy Hunt delivered his Spring Budget, outlining the government’s fiscal policies and economic strategy.
In the weeks leading up to his statement, the Chancellor made it clear that one of the main focuses would be on driving “economically inactive” over-50s back to work.
Shifting employment patterns since the outbreak of the Covid-19 pandemic has resulted in a notable increase in people opting for early retirement, while long-term health issues are another major barrier keeping older Britons out of work.
Accordingly, pensions were a central element to the Budget speech, with several policies and reforms unveiled that are geared towards incentivising those over-50s to work longer or unretire.
What was announced?
Lifetime allowance abolished
Hunt abolished the pension lifetime allowance – previously set at £1.08 million. With previous reports suggesting he was going to raise the allowance to £1.8 million, the decision to remove an upper limit entirely was one of the Budget’s standout policies.
Under current rules, if pension savings exceed the allowance, they are typically taxed 55% on the excess of any lump sum payments, or 25% if they withdraw any other way. Consequently, this can act as a disincentive to carry on working once individuals reach the cap on their tax-free pension. That said, only a small percentage of people ever hit the limit; in the 2019/20 tax year, only 42,350 UK adults breached the allowance.
MPAA increased to £10,000
The money purchase annual allowance (MPAA) was increased from £4,000 to £10,000.
If you start to take money from a defined contribution pension pot, the amount that can be contributed to your defined contribution pensions while still getting tax relief might reduce. This is known as the MPAA. Again, increasing the allowance is designed to encourage people to return to work and begin earning again.
Annual tax-free pension allowance doubles
Hunt also used the Budget to increase the annual tax-free pension allowance by 50% to £60,000 a year.
This is the amount that UK taxpayers can put towards their retirement tax-free in any single tax year. As with the lifetime allowance and MPAA changes, this reform will come into effect in April 2023.
‘Returnships’ and Midlife MOTs
Elsewhere, Hunt confirmed that the Government would be investing in “returnships” – designed to help over-50s learn new skills and integrate back into the workforce. The Chancellor also stated that he would expand the “midlife MOTs” scheme, which provides financial planning and awareness sessions to people in their 50s.
What does My Pension Expert think?
Before and after the Budget, My Pension Expert worked tirelessly to ensure UK pension planners were being heard. For example, I was featured in The Independent and live on BBC Radio prior to the Budget calling for the Chancellor to extend support to everyone, not just the wealthy few.
In the aftermath of the announcement, I shared my thoughts once more, on both the positive and negative elements of the Chancellor’s speech. Featured in the likes of Forbes and City AM, the below comment outlines My Pension Expert’s views on the Budget:
“Jeremy Hunt’s back-to-work budget statement held few surprises. The predicted policies aimed at driving people back into employment were all there. That said, consumers, still reeling from the soaring cost of living, were likely eager to hear the Chancellor lay out his plans to fix the economy, particularly his target audience – over 50s.
“As a historically undervalued demographic, yet one with a plethora of untapped talent, Hunt was right to look to over-50s to address economic inactivity. In today’s climate, retirement plans need to be flexible, and skills training and mid-life MOTs will allow people to adjust to the ever-changing work landscape.
“Increasing the MPAA is a sensible move that allows more flexibility for those who wish to access their pension while continuing work. Likewise, abolishing the lifetime allowance is eye-catching – but it only affects the most affluent earners. Indeed, in the year leading up to April 2020, only 42,350 breached the allowance.
“The chancellor missed an opportunity to help people of all wealth brackets. Looking beyond the figures, it’s disappointing not to see wider support – like improved access to pension information or affordable independent financial advice – being provided to those who need it. No one should feel the need to return to work because they feel pressure – from the government or otherwise – to do so. Going forward, I certainly hope to see the government put such mechanisms in place to empower savers to first weigh up all options and decide whether returning to work is the right move for them.”
At My Pension Expert, we will continue to offer support to pension planners all across the UK, and help everyone to achieve the retirement they want, when they want it.