Budget 2023: big news on pensions as lifetime allowance is abolished

Chancellor’s big reveal was overshadowed by a deepening crisis in the banking sector which rocked markets

Panic in the banking industry overshadowed any big market impact from the Budget on 15 March even if the abolition of the lifetime allowance on pension contributions was a genuine rabbit out of the hat for investors.

Previously the lifetime allowance, which is the maximum you can build up in a pension pot without paying extra tax, stood at a little more than £1 million. The motivation for the change is apparently the fact 80% of NHS doctors retire early due to pension tax charges.

The maximum you can pay into a pension each year tax-free will increase by 50% from £40,000 to £60,000. To put the changes into some perspective, if you were to put away £60,000 per year for 47 years, you would’ve have achieved a savings pot of £2.82 million (without factoring in interest or investment growth).

Chancellor Jeremy Hunt threw a lifeline to those already in retirement by increasing the Money

Purchase Annual Allowance, how much you can pay into a pension once you’ve started taking money out of it, from £4,000 to £10,000. Yearly allowances of £20,000 for adult ISAs and £9,000 for Junior ISAs were left unchanged.

Forecasts from the Office for Budget Responsibility suggest the UK will avoid a technical recession although the economy will still shrink this year and projections for medium-term growth have fallen. An extension of the energy price guarantee from 1 April could provide a boost to consumer-facing businesses, so could an increase in free childcare hours but that doesn’t begin until April 2024.

Pub groups including JD Wetherspoon (JDW) bounced off their lows as the chancellor unveiled a ‘Brexit pubs guarantee’ which means duty on draught products in pubs would be up to 11p below the duty in supermarkets from 1 August – a differential which will be maintained in the future.

There were a couple of announcements to salve any wounds from a looming increase in the headline corporation tax rate from 19% to 25%. Every pound spend on IT equipment, plant or machinery can be deducted in full and immediately from taxable profit for the next three years, with a plan to make this permanent as soon as possible.

News that nuclear energy will qualify for the same investment incentives as renewable energy could be good news for Rolls-Royce (RR.) which is working on small modular reactors – a technology which could enable faster and cheaper development of nuclear capacity.

Hunt pledged to lift the budget to repair potholes each year by 40% to £700 million. That creates opportunities for companies which spend time fixing the nation’s highways including Costain (COST) whose share price moved higher on the news. [TS/SG]

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