I WAS going to cover ISA allowances this week, but the ‘show’ that is called ‘Budget’ put an end to that. I’m regularly asked to do radio coverage on the Budget but it’s like taking a slice of cardboard which is covered in cardboard flavour sauce and trying to make it palatable. Oh, its grey cardboard too.
Normally absolutely nothing happens, and that which did, was already leaked. This is different. Here are the key takeaways:
Pension allowances for higher earners have been increased, so they can now contribute £60,000 per year instead of £40,000.
Still on pensions is the lifetime allowance which has been completely scrapped. Yippee. That is welcomed for many reasons. Your doctors and other consultants found themselves in the position where they were being forced to retire early as there was no further incentive to work, a plan designed by someone with zero foresight or care, for that matter.
An average GP could find themselves with an extra tax bill of £33,000 each year because of the absurd means used with inflation applied to their pension. When a pension pot reaches £1,073,100, there is a lifetime allowance tax charge which is applied. It’s worth noting that a fund of £1million doesn’t go a long way in producing a sustainable income, especially with inflation running at current rates.
The absurd (twice I’ve used that word) ruling meant that a higher rate taxpayer might find themselves paying a 25 per cent tax on the excess over the lifetime allowance, plus 40 per cent tax on income. This creates a highly stressful and complex scenario for pension savers, and effectively creates a ‘what is the point’ pivotal moment.
Last year the British Medical Association (BMA) announced that almost half of consultants were planning to leave, or take a break from the NHS, citing pay and pension as the cause.
Whilst highly complex and stressful, there are always methods to navigate finances, so all that happens is that the pension saver pays more fees all round.
Scrapping the allowance means that doctors, consultants, clinicians can relax without worrying that their pension pot might grow and get to the point where it is ‘too high’, (surely the point of pensions). It’s beyond me where the Lifetime Allowance idea came from other than control. It’s now down to whether those medical staff trust that a future lifetime allowance isn’t brought in as this one was.
With that, medical staff will be motivated to return to work, to continue working and to also work longer where patient need demands it. All NHS staff I know, work more than they are paid for, because that’s their nature – they care.
I welcome the free childcare allowance too which is being extended to nine-month-old children up to their third birthday (the rules in Northern Ireland, though, differ from the rest of the UK). Right now, we need to reduce the disincentive to returning to work, something we see regularly with professional mothers who know they will take home less if they return to anything remotely like they wish.
Implementing it in 2025 is just completely daft. We need people returning to work now. The less people available for work, the more they demand wage wise and the less turnover the business makes. The less it makes, the more it charges higher fees to compensate. It’s a negative feedback loop. (More inflation). The increase in childcare support is also welcomed for the above reasons. Families with one child will receive a £646 monthly limit and £1,632 for two children. Moreover, those families on Universal Credit will receive that up front rather than having to reclaim it. That’s essential in cashflow.
After hours care for school children will be expanded and the funding will be increased for nurseries for the free hours.
All of these matters make their way into everyone’s lives through people returning to work and helping make the world spin. In every business I know they all complain there is no-one available to work. Where have they all gone? Taking away many of the disincentives goes a long way.
It was a hard time for the last few years with many people asking what the point was, particularly after having their autonomy taken away during lockdowns et al. The scars of that run a long way, so every step to return to normality is welcomed.
Peter McGahan is chief executive of independent financial adviser Worldwide Financial Planning, which is authorised and regulated by the Financial Conduct Authority. If you have a financial question ring 028 6863 2692 or email firstname.lastname@example.org