How does the 2023 Budget affect my pension?

Jeremy Hunt revealed the contents of his 2023 Budget in the House of Commons last week. Amongst announcements on household energy bills, free childcare and corporation tax, the Chancellor unveiled surprise changes to the pension tax regime that could benefit anyone who is a higher earner.

Currently, there are two methods by which your pension is taxed in the UK. The first is the tax payable on the total amount of money in your pension pot at retirement. This is known as the ‘lifetime allowance’ and is the maximum value of a pension pot before it is subject to tax.

This figure has reduced over recent years but currently stands at £1,073,100 for the 2022/23 tax year. This means that you will pay no pension tax on the value of your pension up to this sum. Any excess will attract a tax liability at retirement.

The second pension tax becomes payable if your pension savings exceed £40,000 in a single financial year. This is known as the ‘annual allowance’. Tax is payable on the excess at the individual’s marginal rate.

Understandably, these tax provisions have deterred high earners, such as dentists and doctors, from saving for retirement in order to avoid falling foul of the pension tax regime. This has also led some highly paid individuals to retire early or reduce their hours which has, in part, contributed to the shortages of NHS staff.

Presenting the Budget, Hunt stated: “I have listened to the concerns of many senior NHS clinicians who say unpredictable pension tax charges are making them leave the NHS just when they are needed most.  “In an apparent bid to reverse the trend of high earners taking early retirement, Hunt announced that the lifetime allowance will be scrapped. This means that there is no limit on the total value of your pension at retirement - great news for anyone with a lifetime allowance protection in place, as protections generally prohibit the individual from accruing any further pension. Higher earners can now continue to save for their retirement, at a rate that suits them.

The annual allowance will also increase to £60,000 - a 50% increase on the amount you can save into your pension on an annual basis. 

It is estimated that these changes will cost the Treasury £2.75bn over the next five years. This has led to questions within the industry as to whether these monies, which will principally benefit high earners, could have been better used, at a time when the Government’s own figures suggest that more than 12 million people are not saving enough into pensions.

However, we expect that these changes to the pension tax regime will be welcome news to many in the sector.

Edward Martin

Brabners LLP

If you are a sole contractor on an NHS contract and considering the next steps to accessing your NHS pension, do take legal advice before giving notice to the NHS. 

Contact our specialist Dental and Pension Team at Brabners who will be delighted to assist you.