Spring Budget 2023 in brief: Key highlights for the Employment and Pensions sector15/03/23
The single most eye catching reform on pensions announced during the 2023 Spring Budget is that, in order to encourage individuals who are over 50 to extend their working lives, the government is increasing tax relief on pensions.
The Lifetime Allowance (LA) charge will be removed from April 2023 before the Allowance is abolished entirely from April 2024. LA will be raised from £40,000 to £60,000 from 6 April 2023, to try and help ensure that high skilled individuals such as NHS clinicians are not dis-incentivised from remaining in the workforce.
In relation to the impact on the NHS and other public sector employers, these changes are likely to be welcomed by stakeholders. The hope is that bringing in changes which provide an opportunity for individuals to build up a higher level of pension benefits more quickly, will have a positive impact in the shorter and longer term on retention, and also promote a return to work of over 50s within the sector.
The detailed changes
In order to try and increase labour market participation from inactive individuals who are aged over 50, the government has announced the following:
1. The Government will offer an expanded midlife MOT review scheme to help individuals take stock of their finances and wellbeing to prepare for a more secure retirement, specifically:
- the digital strand of the offer will be expanded to ensure more people can access targeted online guidance regarding their career, health and finances
- the in-person midlife MOT offer will be expanded by the DWP, providing more financial planning and awareness sessions.
2. Pensions tax - in order to incentivise highly skilled individuals to remain in the labour market, including the NHS:
- the government will remove the Lifetime Allowance charge, before completely abolishing it in the 2024 Finance Bill
- will raise the Annual Allowance from £40,000 to £60,000 from April 2023
- tax changes in respect of flexible retirement - once an individual flexibly accesses their defined contribution pension savings, the total tax-relieved pension savings they can make each year is restricted to the level of the Money Purchase Annual Allowance. To help support those who have left the labour market to return and supplement their income or build up their retirement savings, the government will increase the Money Purchase Annual Allowance from £4,000 to £10,000 from 6 April 2023
- individuals will still be able to carry forward unused annual allowances from the three previous tax years – with the adjusted income threshold for the tapered annual allowance being increased from £240,000 to £260,000 from 6 April 2023.The maximum pension commencement lump sum for those without protections will be retained at its current level of £268,275 (25% of the current Lifetime Allowance of £1,073,100)
- Public Sector - to increase retention in the workforce of the public sector, open and closed public service pension schemes for a given workforce will be linked for the purposes of calculating Annual Allowance charges, allowing members to offset any negative real growth for Annual Allowance purposes in legacy public service pension schemes against the Annual Allowance.
Pension scheme investment/Local Government Pension Scheme
The Government has announced some measures to help unlock defined contribution (DC) pension fund investment into the UK’s science and tech companies under a new Long-term Investment for Technology and Science (LIFTS) initiative.
The government is leading on this by pursuing the accelerated transfer of the £364 billion of Local Government Pension Scheme assets into pools (by March 2025) to support increased investment in innovative companies and other productive assets. It will shortly come forward with a consultation on this proposal to require LGPS funds to consider investment opportunities in illiquid assets such as venture and growth capital, in order to unlock LGPS assets into long-term productive assets.
How Capsticks can help
Capsticks has significant experience of supporting healthcare and public sector employers on all kinds of pension issues, so you can operate effectively under the pension scheme and avoid risks for your organisation and employees. We’ll keep you updated on the consultation and will let you know of further decisions as soon as they arise.
For further details on the issues discussed, please contact Neil Bhan to find out how we can help.