Budget update & reaction – what this means

Monday 1 May 2023 Henry Tapper - Pension PlayPen 1

Budget update & reaction – what this means for pensions

Henry TapperFounder Pension PlayPen


Overview

What’s new• Lifetime ISA • Hike in employer contributions

to public pensions (c2%)• FAMR Changes to advice • Income and CGT and corporate

tax rates• Restructure of

MAS/TPAS/Pensionswise

What stays the same• Pension tax relief• Pension salary sacrifice• LTA and Annual Allowance• Neutral to payroll• Neutral to auto-enrolment• Neutral to take-home


Lifetime ISAFeature• £4,000 limit (overall limit £20k)• Save Four get one free• Available to 50• Not a workplace ISA• Top-up pays out when you buy your

first house• Top up pays out when you get to 60• Top up repayable +interest + 5%

otherwise• You may be able to borrow against it

Impact• Targets smaller savers• Properly marketed• “Pensions are for older people”• Targets individual pensions/SIPPs• Est. 0.3% on value of house by 2021*• Incentivises long-term saving• Penalises feckless spending• Like a US 401k plan?

• *Andrew Handedly- Prospect


How this Lifetime ISA works


The £2bn raid on employer’s pension costsFeature• Change in Scape discount rate• Reduction by 0.2%• Scape covers public sector

unfunded• “Affordable within spending

plans”

Impact• Deficit funding required• Cost to employer = +2% of payroll• Funded LGPS may be affected• Knock on impact on other

benefits/salaries/services


FAMR advisory changes

Feature• Advisory benefit in kind

concession increased from £150 to £500 (including VAT)

• Money can be deducted from the pension pot (for under 55’s)

• (advice/guidance definitions to change)

• Pensions dashboard by 2018

Impact• Improves scope of

advice/guidance deliverable at no employee cost

• Advice relatively painless• Financial education becomes

relatively mainstream?• Onus on Providers to raise game


Rationalising TPAS/MAS/Pensions WiseFeature• Two units – Pension guidance

and Money guidance• Pensions unit with DWP and

“Money” with Treasury• Service to be “front line”• Money guidance(debt) Slimmed

down MAS

Impact• Power shift to pensions• Pensions guidance stays with

DWP• More TPAS than MAS• Less overall resource


Personal and corporate taxes

Feature• Increases in marginal rates NRB -

£11,500, HRB - £45,000• CGT down to20% and 10% from

28% and 18% • Business rates slashed• Redundancy payments subject

to NI (>£30,000)

Impact• Increase in AE contributions,

pays to be in work• Improves value of share based

employee benefits• 630,000 SMEs to pay no “rates”• Boost to pensions as

terminations paid in pensions• No pension nasties


What does this mean to payroll?

Feature• No changes to pension tax-relief• Clamp-down on offshore payroll• Lifetime ISA• Class 2 Nics. Abolished• Changes in the AE band• Lifetime ISA

Impact• Relief for in-house and bureaux• Boost for UK payroll• Not a workplace ISA (yet)• A boost for self-employment?• Continued confusion re net/pay

and annual allowance.• More member queries (from the

millennials)


What does this mean to auto-enrolment?Feature• Lifetime ISA • Hike in employer contributions

to public pensions (c2%)• FAMR Changes to advice • Personal and corporate tax rates• Restructure of

MAS/TPAS/Pension wise• No change to tax relief

Impact• Opt-outs for under 40s• Pressure to offer pension/salary flex

(Oxleas NHS trust)• AE more attractive to IFAs• Improve SME affordability (tough on

re-enrollers)• capacity relieves for member services• Net pay problems persist


What does this mean for pensions?

Feature• Lifetime ISA • Hike in employer contributions

to public pensions (c2%)• FAMR Changes to advice • Income and CGT and corporate

tax rates• Restructure of

MAS/TPAS/Pensionwise

Impact• Threat to accumulation (dry-rot)• Threat to affordability• More advice/education in the

workplace• Scope for higher corporate

contributions• Pensions likely to be better

served


What’s to come• Budget does not address the £21bn cost to Income tax• Budget does not address the £14bn lost to national insurance• Impact on budget balance of auto-enrolment strains budget balance• Tax-relief continues to favour top 10% of earners• Problems for low earners in net pay schemes persist• Current system (AA taper/PIPs) widely considered unsustainable• RTI and Scheme Pays remain best means of tax collection for pensions• “Payroll has suffered enough”


Technical changes to Pension Freedoms re-aligning tax on serious ill-health and death benefit lump sums for those aged<75

making serious ill health lump sums taxable at an individual’s marginal rate for individuals aged 75 and over

legislating to convert dependents' flexi-access drawdown accounts to nominees’ accounts when dependents turn age 23, so they do not have to

take their funds as a lump sum taxed at 45%

legislating to allow DC pensions already in payment to be paid as a trivial commutation lump sum, where total pension savings would be under £30,000

making top ups to fund dependents' death benefits authorised payments

removing unnecessary legislation relating to charity lump sum death benefits.

appendix

News & Politics

Budget update & reaction – what this means