Pensions were at the forefront of Jeremy Hunt's Budget today, with changes to the amount you can save aimed at getting older people back into work
The key changes are:
- Annual tax-free pension savings allowance increased: Currently, the most you can save tax-free into private pension pots in one tax year is £40,000. This is known as the "pensions annual allowance" and will rise to £60,000 from April 2023. You can only receive tax relief on the amount you earn, so if your earnings are lower than £60,000 from April, you'll only be entitled to tax relief up to that level.
- If you've accessed your pension, the amount you are allowed to pay back into it will rise: If you start to take money from a defined contribution pension, the amount you can pay into your pensions and still get tax relief on is currently £4,000 a year. However, it will rise to £10,000 a year from April 2023.
- Lifetime Allowance on pension savings scrapped: You will now be allowed to put aside as much as you want in your private scheme without being taxed, with the current £1,073,100 threshold abolished.
The changes have been criticised for helping only the rich, with NHS doctors in particular being most likely to benefit from the abolition of the Lifetime Allowance. The Chancellor said he had “listened to the concerns” of senior NHS doctors who say pension tax charges are “making them leave the NHS”.
Phil Brown, director of policy for People’s Partnership, provider of the People’s Pension, criticised the plan, saying the changes will not have an impact on the vast majority of pension savers and Labour leader Sir Keir Starmer said the pensions shake-up amounted to helping the rich – saying the abolition of the LTA “benefits those with the broadest shoulders”.
However, regardless of what you earn, there are other changes around the corner that retirement savers should be aware of:
State pension payments rise next month
The state pension is rising by 10.1% from next month after the Government reinstated the triple lock following a break in 2022. The full state pension will rise from £185.15 to £203.85 per week from April 10, while the basic state pension will increase from £141.85 per week to £156.20 per week.
Deadline to boost NI contributions pushed back
The deadline to plug any gaps in your National Insurance (NI) contributions has been extended to July 31 after the DWP was overwhelmed with demand. Most people need 35 years on their NI record to claim the full new state pension, and ten years to get anything at all. Under current rules, you can buy NI contributions dating back to 2006 to fill any gaps in your record and boost your retirement cash But after July 31, you'll only be able to top up your National Insurance record from the previous six tax years.
State pension age increased
The current state pension age for women and men retiring now is 66, but it will rise to 67 between 2026 and 2028, with a further increase to 68 in the pipeline between 2044 and 2046. The Chancellor did not make any changes to the pension age in his Budget, but a review released in 2017 called for the increase to 68 to be brought forward to between 2037 and 2039.
Pensions dashboard delayed
The long-awaited project which will will allow people to see all their pension pots in one place, so they can more easily plan for their retirement, has been delayed after work and pensions minister Laura Trott said the Department for Work and Pensions (DWP) needed “additional time” to set it up.
Plans to change auto-enrolment age
Auto-enrolment is where you're automatically placed into your employer’s workplace pension scheme. To be auto-enrolled, you must be between the age of 22 and the state pension age, and earn above £10,000. But there are proposals to lower the age limit for when you can be auto-enrolled from 22 to 18. The Bill outlining the proposed changes cleared its first hurdle after MPs gave it an unopposed second reading and the proposals have been backed by the DWP.
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