Jeremy Hunt’s recent announcement was widely dubbed the ‘Back to work Budget.’ Nevertheless, the measures impacting pension taxation were also significant. These give the industry a chance to remind the nation that pensions are really…rather good.
The abolition of the lifetime allowance and the extension of the annual allowance will have the materially largest impact on higher earners, as the government tries to persuade senior doctors and their peers to remain in work for longer. Pensions just became a whole lot more tax-efficient for those at the wealthier end of the benefit spectrum.
But let’s not forget that, for most mere mortals, pensions are already a really tax-efficient means of saving for our financial future. Most of us are already in a position where we can save as much as we can reasonably afford into a pension scheme, and won’t have to pay tax on it until we start drawing benefits – and even then, we can get up to a quarter of it tax-free.
About six weeks ago, the DWP published a piece of research and analysis which found that ‘Attitudes towards pensions were quite negative. Participants felt detached from their pension and little to no sense of ownership towards it.’[1]
Well, here’s an opportunity to inject some positivity. Remind people that you get tax relief on your contributions, you get tax-free growth on your investments, and you get to take part of your benefits tax-free as well. And those perks aren’t just the province of the super-wealthy.
A decade on from auto-enrolment, we can see that it’s had the desired effect of getting more people into pensions. But we still face the challenge of getting those people to pay more money into pensions. The tax advantages aren’t the only trumpet in our brass band, but maybe this raft of changes should prompt us to blow it and call members to attention – and to action.
Schemes will be scrambling to update their literature and websites to take account of the changes. But in the rush to make sure everything is correct and compliant, let’s not miss the opportunity to promote the pension scheme to members. At a time when many people are looking for all the financial help they can get, here’s a chance to save money by saving money.
Sure, this aspect of the Budget is good news for high earners. But pensions are good news for everyone, aren’t they?
[1] “Understanding member engagement with workplace pensions”, 30th January 2023. https://www.gov.uk/government/publications/understanding-member-engagement-with-workplace-pensions/summary-understanding-member-engagement-with-workplace-pensions