In November 2022, Jeremy Hunt delivered his autumn statement.
As his first major announcement as chancellor, Hunt was keen to allay the public’s fears – and those of the wider markets – following his predecessor’s disastrous mini-Budget.
While the statement was short on pension announcements, some key decisions will affect your retirement in 2023.
Keep reading to find out how.
The backdrop to the statement left the chancellor with some difficult decisions to make
At the end of a tough year for global markets, the chancellor was clear that were no easy choices.
He unveiled £55 billion of “consolidation” in the form of tax rises and spending cuts that will mean difficult times for millions of UK households as the country plunges into a recession.
There was, though, good news for many.
Those on the living wage will see their pay increase, the Stamp Duty threshold rises made by Kwasi Kwarteng are set to remain in place in the short term, and energy bill help will continue into 2024, although at a lesser rate from April.
The best news, though, was reserved for pensioners and those approaching State Pension Age.
The State Pension “triple lock” will be honoured, increasing your State Pension in April
Introduced by the coalition government back in 2012, the “triple lock” ensures that your State Pension is inflation-proofed. It does this by guaranteeing to increase the amount you receive each year by the higher of:
- The Consumer Price Index (CPI)
- Average wage growth across the UK
During the coronavirus pandemic – when a quirk of the government’s furlough scheme left wage growth anomalously high – the triple lock was downgraded to a double lock.
In the runup to the chancellor’s autumn statement, all eyes were on September’s inflation figure.
The CPI has been high and rising for the last 18 months, and stood at a massive 10.1% in September, marking a 40-year high.
Jeremy Hunt confirmed that he would be honouring the triple lock. This means you’ll see your State Pension rise from April 2023.
The new full State Pension for the 2022/23 tax year stands at £185.15 a week (or £9,627.80 a year). From April 2023, this will rise to £203.85 (or £10,600.20 a year), an annual rise of £970.
You might be able to use your pension to lower your Inheritance Tax liability
In his 2021 Spring Budget, then-chancellor Rishi Sunak froze the Inheritance Tax (IHT) nil-rate band and the residence nil-rate band. The freeze (at £325,000 and £175,000 respectively) was set to remain in place until at least 2026.
Jeremy Hunt used his autumn statement to lengthen that freeze until 2028.
This will undoubtedly mean more people paying IHT as investments and house prices are likely to rise over the next six years.
However, your pension remains a great way to be IHT-efficient.
Remember that unused pension funds will usually remain outside of your estate for IHT purposes. Speak to your pension scheme provider to name a beneficiary via an “expression of wish” form (rather than using a will, as you might do for other forms of inheritance).
In the event of your death before age 75, your chosen recipient will receive your unused pension fund, tax-free.
If you die after age 75, your beneficiary will still receive your unused pension but it will be liable to tax and the highest rate they pay.
With IHT receipts rising – receipts for April 2022 to October 2022 reached £4.1 billion according to the government – making clever use of your pension might help you avoid some of the negative effects of this autumn statement announcement.
At The Pension Planner, we can help you tax-efficiently manage your pensions. This might mean using cash savings or investments to part-fund your retirement, lowering the value of your estate while holding some of your pensions back until last.
The Lifetime Allowance remains frozen but it wasn’t extended further… for now
Another area of pension legislation that was expected to feature in the autumn statement was the Lifetime Allowance (LTA).
Despite previously rising each year in line with the CPI, the LTA was another allowance frozen during the 2021 Spring Budget (at £1,073,100). As with the IHT threshold freezes, the measure was in place until at least 2026.
Unlike the IHT thresholds, though, the LTA freeze hasn’t been extended… yet.
A recent report by PensionAge suggests that measure could be set to raise £2 billion for the Treasury, twice the amount originally predicted.
The money will come from LTA charges (payable at 55% or 25% depending on how excess funds are accessed) and by “saved” tax relief as those approaching retirement stop contributing to their pensions.
While the freeze hasn’t been extended yet, it is likely to remain on the chancellor’s radar, due in part to the cost to the government of pension tax relief.
We can help you to keep an eye on your pension levels and ensure the LTA doesn’t give you any surprises in 2023.
Get in touch
The autumn statement was always going to be a tough sell for the new chancellor. If you are worried about any of the announcements made or would like to discuss another aspect of your long-term retirement plans, get in touch. Email firstname.lastname@example.org or call 0800 0787 182.
A pension is a long-term investment. The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Your pension income could also be affected by the interest rates at the time you take your benefits.