Spring Budget 2023: Lifetime Allowance scrapped

Chancellor Jeremy Hunt unveiled his Spring Budget today. Below we’ve listed some of the shifts which could impact your personal finances.

The Lifetime Allowance, which capped the amount you could hold in your pension before it faced an excess tax charge, has been abolished.

The Lifetime Allowance previously stood at £1,073,100, with any money exceeding this limit taxed at 25% for income withdrawals and 55% for lump sum withdrawals.

The move comes as the Chancellor tries to incentivise people to re-enter the workforce.

“It will incentivise our most experienced and productive workers to stay in and work for longer,” said Hunt.

Les Cameron, Head of Technical at M&G Wealth, said that the move was unexpected but welcome. 

“This should see a reduction in attractiveness of other tax-incentivised vehicles, such as venture capital schemes, which were the natural go-to places for those who’d had their pension funding limited by the Lifetime Allowance,” he said.

Before the Budget, the maximum you could deposit into your pension each year stood at £40,000.

This threshold will now increase by 50% to £60,000 per year.

The change, together with the scrapping of the Lifetime Allowance, means 80% of NHS doctors won’t receive a tax charge with respect to accruals under the 2015 NHS career average scheme, according to the Chancellor.

In a further bid to incentivise older people to return to the workplace, the Chancellor unveiled “Returnerships”, essentially an apprenticeship scheme aimed at over-50s to help them refine and develop their skills to find work in new sectors.

And for working parents in England, a planned reform of the childcare system will eventually see parents of children aged nine months to three years old being offered 30 hours a week of free childcare, if both parents work at least 16 hours a week.

The fuel duty rate will be frozen over the next 12 months. This includes the 5p cut per litre announced last March. 

The Chancellor said that the decision will “save the average driver £100 next year and around £200 since the 5p cut was introduced”.

He also said that this, together with freezing the duty on draught beer in pubs, will help inflation fall by 0.75 percentage points this year.

Jack Cousens, Head of Roads Policy at the AA, welcomed the freeze on fuel duty and said it will help tame inflation.

“Not only will this save drivers ‘heavy duty’ pain at the pump, but it will help keep the price of goods and services down as they are mainly transported by road. Crippling road fuel costs are also a major driver of inflation,” he said.

Earlier today, the Government announced that it will extend the current Energy Price Guarantee for an additional three months.

The cap for a typical home stands at £2,500 and was due to rise to £3,000 from April. However, by extending the current cap for an additional three months the average household will save £160, according to the Government.

“Falling wholesale energy prices have played into the Government’s hands,” said Laura Suter, Head of Personal Finance at AJ Bell.

She explained that when the Energy Price Guarantee was announced the Government expected the scheme to cost £12 billion. However, it has only cost £4 billion thus far.

“Even by extending the measure at £2,500 the Government will still come in under budget, with the move costing an additional £3 billion,” said Suter.

“The Government gets a double boost from the move, with households having lower bills and those lower energy costs helping to squash inflation,” she explained.

This sentiment was echoed by Prime Minister Rishi Sunak.

“Continuing to hold down energy bills is part of our plan to help hardworking families with the cost of living and halve inflation this year,” he said.