How Does the Spring Budget 2024 Affect Pensions
With an election on the horizon and an objective to stimulate the economy without spending too much money, eyes were on Jeremy Hunt, the Chancellor of the Exchequer and the Spring Budget 2024 announcement. How does the Spring Budget 2024 affect pensions?
National Insurance
The anticipated 2% decrease in National Insurance contributions (NICs) instead of income tax reductions aligns with previous moves, as income tax cuts tend to have a greater inflationary impact than NIC adjustments. Additionally, NIC changes primarily affect workers, while income tax cuts extend to non-working individuals.
For those with the means, the recent reductions in National Insurance rates may serve as a prime chance to boost your retirement fund. An individual who falls within the basic tax bracket could potentially experience a monthly income increase of £62.83 due to the NI cut. By directing this additional income into their pension, they could effectively receive £78.53 each month thanks to the 20% tax relief granted by the government. With time, these contributions could rapidly accumulate into a substantial source of financial stability for your future.
State Pension
In accordance with Triple Lock, the new tax year will see the new State Pension increase from £10,600 to £11,502 annually (equivalent to £203.85 per week to £221.20 per week).
Pension Lifetime Allowance
The Pension Lifetime Allowance will be removed from 6 April 2024. Eliminating the allowance will allow individuals to contribute to their pensions without worrying about being taxed if they exceed the threshold. So, those with bigger pension pots can save more without worrying about tax penalties.
Presently, there is a cap of £1,073,100 on pension contributions. Any withdrawals beyond this threshold may be subject to a high tax rate of up to 55%. However, an important note is that the tax-free cash cap will continue to be enforced. This cap currently stands at £268,275 or 25% of the previous Lifetime Allowance (LTA).
Increase in Yearly Allowance
The pension annual allowance is the maximum amount you can contribute to pensions within one tax year while still receiving tax relief. Next month, the Annual Allowance will increase from £40,000 to £60,000. Essentially, for every £80 you put into your pension, the government will add £20, bringing your total contribution to £100.
Free Childcare from 9 Months
Beginning in April 2024, working parents with two-year-olds will have access to a maximum of 15 hours of complimentary childcare each week. Then, starting in September 2024, this same program will be extended to working parents with children between nine months and two years old.
This boost to childcare has the potential to assist over a million women in returning to the workforce. According to the government, this action is predicted to help decrease both the gender pay gap and the gender pension gap by promoting a prompter return to work following childbirth.
Senior Independent Pension Adviser at FMP said: “Although the financial benefits following the spring budget 2024 seem quite small, there are certainly positive changes regarding pension savings. The increase in yearly allowance and the removal of the lifetime pension allowance will no doubt help people save towards a better future. ”