Published 15 March 2023.
So the Government announced its new 2023 Budget…what do I need to know?
- Energy price guarantee: The cap on energy bills is being extended for at least three more months, until the end of June. It limits a typical annual household bill to £2,500.
- Free childcare for under 3s: Good news for families…the Government announced it will provide 30 hours of childcare a week to parents of one and two-year-olds. This is a big boost – as families currently don’t receive any support between parental leave ending and free nursery hours starting when kids turn three.
I heard something about pensions too.
Yes, there’s some big changes to pension allowances.
- Annual Allowance: The annual amount you can save into your pension tax-free will increase to £60,000 (up from £40,000)
- Lifetime Allowance: It’s gone! There’s now no limit to the total amount you can have in your pension over your whole life. (It was previously a maximum of £1.07 million, before being subject to extra tax.)
Interesting. Why the changes?
The Government is looking for ways to encourage more people back to work – whether that’s parents or over-50s who are considering retirement. Putting more people to work can help boost economic growth.
Since the pandemic, many people have reduced their hours or retired early. And sometimes it’s because they’re getting close to hitting the Lifetime Pension Allowance – at which point they could get hit with a big tax bill. So the Government is sweetening the deal: keep working and get the chance to stash more money away into your pension.
Remind me, what’s so good about pensions?
A pension is just a really tax-efficient way of saving money for your retirement. When you save some of your salary into your workplace pension, you walk away with a lot of free money. That’s because whenever you contribute to your pension, you’ll get some tax relief from the government, boosting your savings significantly. Plus, when you put money into your workplace pension, your employer adds some too.
Wait…how much “free money” are we talking about?
Well, it’s different for everyone. But imagine you save £100 into your pension, you actually get £225. You’ll get £100 extra from your company (assuming they match the contribution) and £25 from the Government. Let’s say that grew at 6%. In 30 years, that could be worth £1,300. And that’s just £100…
So what should I do about my pension?
In practice, the pension changes will only impact you if:
- You’re already saving £40,000 each year into your pension
- You were forecasted to save over £1 million into your pensions over your lifetime
If either is true…you’ll now be able to save lots more money into your pension and increase how much you’ll have in retirement.
If you’re not sure what your retirement forecast looks like…then you can get a personalised money plan from an accredited coach at Octopus. Maybe it’s time to think about your dream retirement…and to make sure you’re on track.