No Limits!!

No Limits!!

Monday 20th March 2023

The Budget

Well not quite as only one of the limits on Pensions i.e. how much you can have in a pension fund, without paying extra tax, called the Lifetime Allowance (LTA) was removed and indeed was a huge surprise announcement by The Chancellor as he set out plans to scrap it in Wednesday's Budget.

Another limit is how much you can pay into a pension, called the Annual Allowance, and whilst this remains in place it was generously increased by 50% to £60,000 per year. Bear in mind there is an overriding factor that if you make personal contributions you are limited to 100% of your earnings. The £60,000 limit is reduced for those on high earnings, or who have flexibility accessed their pension fund. Even then the reduced amount has been increased to £10,000 from £4,000. Taken together, the package of reforms will cost around £4 billion over the next five years according to Government forecasts. It unleashes huge potential for clients to take advantage of the dramatically improved tax situation.

This seems to be the price to retain and hopefully attract back senior NHS doctors, many of whom have experienced significant pension tax charges in recent years as they can be impacted by a tax charge on the Lifetime Allowance, Annual Allowance or indeed both. This has seen many of them leave, creating staffing shortages at a time when the country desperately needs doctors to clear record waiting lists.

Of course the layering and perpetual change of pensions has made it incredibly complicated over the years, which is where we come in. Yet this change, which on the face of it seems a layer removed, we realise has so many implications and indeed may well have a short sell by date of opportunity as Labour has promised to reinstate the Lifetime Allowance should it win the next election.

The Government will have to legislate to abolish the LTA altogether from 2024 which will be put forward in a separate Bill at a later date. Next year there is still therefore the need to comply with the LTA tests so, for example, the test at age 75. The way they are dealing with this is to set the tax charge to 0%. The Government says those with LTA protection in place will effectively see that superseded by the announcement and will no longer be required to comply with protection conditions. This worries us - for example the maximum limit on tax free cash will be frozen at its current level of £268,275. However, individuals with protected entitlement to tax free cash can retain it and so may be higher, so don't tear up those protections just yet. What it means is that the devil will be in the detail and hence the importance of seeing that detail in the new Bill and indeed in the final passing of the Finance Act.

There's a lot more we could expand on, but realise the advice will be very individual to suit you, which we'll address with those of you concerned over the next few months.


The budget was set against a background of what appears to be a further banking crisis. This was set off by the bankruptcy of Silicon Valley Bank (SVB) last week, but has since extended to worries about the sustainability of Credit Suisse in its current form. The fear is if it is a repeat of the 2008 Global Financial Crisis and for further detail on why not please read this Brewin Dolphin bulletin.

Markets have had a dreadful time in March which has been so disappointing following the cautious optimism of January and February. Then there was a view of steady growth, lower inflation, and lower interest rates, whereas March has seen a stronger economic outlook meaning higher growth, higher inflation and ultimately meaning higher interest rates. It's ironic that such good news is seen so badly by the markets, so ironically bad news is good for stock markets. One consequence of the Credit Suisse and SVB banking issues is that expected interest rates rises may reverse slightly. US inflation data on Tuesday came in at expectations and all eyes will be watching the Fed next week as they choose between a 0.25% or 0.50% interest rate hike and as ever the importance of their comments.

A commentary by Mike Fox, Head of Sustainable Investments and Fund Manager of Royal London Asset Management, we thought was very appropriate about the businesses they invest in:
"One of the privileges of working in fund management is access to CEOs across a range of industries and geographies. Despite perceptions otherwise, they are normal people who have achieved abnormal things in their professional lives. The majority are decent and committed managers of large and complex organisations who must deal with many of the issues we see in everyday life. What has come through in our recent meetings with them is a sense of determination and optimism we think is sometimes lost in investment markets. Many of these CEOs have led their companies through the pandemic, Ukraine war and soaring inflation but treat problems like puzzles; they are there to be solved. Some ask us to stop reading the newspapers, which are often glass half empty in their interpretation of events. All believe the best years for the companies they manage are ahead of them, something we should all remember as the events of 2023 and beyond unfold."