March brought market volatility and big changes to pension taxation in the Spring Budget. Our Head of Personal Finance dives into why you may have seen a dip in your pension performance this month, plus important changes to your pension tax allowance.
A potted summary of March market performance
- The UK The global network of stock exchanges that lets investors buy and sell shares in publicly listed companies. (FTSE100) fell 3.58%*
- The US market (S&P 500) rose by 4.00%*
- Concerns over the health of Silicon Valley Bank (SVB) caused their customers to withdraw their funds rapidly and, subsequently, US regulators stepped in which shook markets and created volatility
- Interest rates continued to rise in the UK and US
It’s likely that you will have seen all of this reflected in your pension performance this month. For a more in-depth look at last month’s market performance, check out our Head of Personal Finance Brian Byrnes’ rundown.
Changes to the pension you need to know
The Spring Budget introduced big changes to pension taxation
March saw the new Chancellor, Jeremy Hunt, give us first insight into his plans for the UK economy with the Spring Budget. Hunt stepped up from his former position as Health Secretary, after his predecessor Kwasi Kwarteng was dismissed, following the now infamous September budget which impacted the UK economy and reputation hugely.
Hunt’s Spring Budget outlined changes to the pension Lifetime Allowance, Annual Allowance, and Money Purchase Annual Allowance.
Lifetime Allowance (LTA) is the maximum amount of retirement wealth you can build across all your pensions (both workplace and personal) before tax charges apply. This maximum previously sat at £1.07m. That meant that any amount above this limit could be subject to LTA tax charge up to 55%. However, under the Spring Budget, the LTA will be abolished altogether from April 2024. As a result, any LTA tax charges will still apply until then. However, instead of applying a flat 55% tax charge on lump sums in excess of the LTA from 6 April 2023, these will be charged at the recipient’s marginal tax rate.
Annual Allowance (AA) is the maximum you can pay into any pension(s) in a given tax year. That includes employer and employee contributions into a workplace pension, as well as personal contributions into a personal pension. The allowance is rising from £40,000 to £60,000.
Money Purchase Annual Allowance (MPAA) replaces your annual allowance once you start withdrawing money from your pension and means that you can only put a smaller amount back into your pension thereafter. This is rising from £4,000 per year to £10,000 per tax year.
You may be wondering how these changes will affect you. The answer is that they most likely won’t. To put them into context, the previous tax allowances meant that many senior NHS doctors and consultants received tax bills for working their ordinary hours, which led to many senior NHS practitioners taking early retirement. So while the proposed changes to pension taxation won’t directly impact most people, they will encourage the over 50s and senior professionals to stay in work and continue to contribute to the economy. Plus, removing barriers to saving into pensions is a positive step in the right direction.
The State pension age stays put despite rumours of it rising sooner than planned
As of 6 April 2023, the reinstatement of the State pension triple lock will come into effect, after the Chancellor confirmed the government would commit to increasing the State pension by 10.1% in line with inflation, in the Autumn mini-statement.
There was much speculation ahead of the Spring Budget that the Chancellor would announce the State pension age would be increased to 68 sooner than planned, but for now it stays put.
For those in their 20s and 30s, the increase in State pension age may worry you – but here’s why it shouldn’t be a cause for concern. The State pension is essentially irrelevant to you right now because there’s no way to tell what shape or form it will be in when you reach State pension age. The best thing you can do right now is focus on contributing to your workplace pension, make the most of employer contributions and pension tax relief, and, if you can, contribute to a personal pension.
Those over the age of 45 can start planning for retirement and the State pension with more certainty. Find out how much State pension you could get and when you can get it at Gov UK.
Indefinite delays to the pension dashboard – but here’s how we can help
In March, Pensions Minister Laura Trott announced the rollout of the pension dashboard will be delayed further, with no suggestions of a launch date. The pension dashboard is planned to be a government platform which allows people to see what they have saved in their various pensions, along with other information about their pensions. The programme is to be introduced to combat concerns that people in the UK aren’t engaged with their pensions, a concern compounded by the fact that, currently, there’s £26.6bn sitting in ‘lost’ pension pots in the UK1 – up from £19.4bn in 20182.
The pension dashboard programme may be delayed indefinitely, but we’re able to help you track down your lost pensions and combine them into one personal pension – even if you don’t know your policy details. Our dedicated Pension Detectives only need the name of your previous employer and dates you worked there to track down your old pension pots. Head to Discover > Tools > Scroll down to Pension provider search in-app to find your lost pensions.
*Google Finance, 1 March – 31 March 2023
1 PPI, Briefing Note 110: What’s the scale and impact?, 2018
2 PPI, Briefing Note 134: What’s the scale and impact?, 2022