What happened to pensions in March 2023?

Clare Reilly

by , Chief Engagement Officer

at PensionBee

01 Apr 2023 /  

Bee on top of white flower, in a field.

This March the clocks have gone forward and, according to this year’s Spring Budget, the UK economy’s also moving forward. The Chancellor, Jeremy Hunt, shared his vision for long-term fiscal growth in our (sometimes) green and pleasant land. Like that of a gardener, the Chancellor was sowing the seeds of growth across the country. What’s been announced? The government’s pledged to halve inflation, reduce debt, and get the economy growing again. Let’s break those down:

  • First, with inflation standing tall at 10.7% at the end of 2022, the UK’s already on track to achieve an inflation rate of 2.9% by the end of 2023. So this announcement’s closer to a projection than a promise. Still, good news in a cost of living crisis.
  • Second, shovelling more taxpayer money towards filling the public debt hole - and potholes too while they’re at it. This wallflower tax update (along with a 5p cut to fuel duty and reduction in alcohol taxes for pubs) is unlikely to make news headlines.
  • Third, creating a growth economy by increasing employment rates. The Chancellor’s ‘back to work’ plan involves incentives for “the economically inactive”. Specifically targeting people living with disabilities, new parents, and those over the age of 50.

However, not everything in the garden’s rosy. Behind these ambitious growth targets is the reality that Britain’s the only G7 economy forecast to shrink in 2023. Although the latest forecasts suggest the UK will avoid a ‘technical’ recession, we’re not out of the woods yet. In efforts to raise the necessary seed money to fund these initiatives, the government has confirmed an increase from 19% to 25% in corporation tax, along with the freeze on income tax bands (dubbed the ‘stealth tax’ by critics).

Keep reading to find out how markets have performed this month, and what does the 2023 Spring Budget mean for the future of pensions.

What happened to stock markets?

In UK stock markets, the FTSE 250 Index fell by over 5% in March, bringing the year-to-date performance close to -1%.

FTSE 250 Index Source: BBC Market Data

In European stock markets, the EuroStoxx 50 Index rose by over 1% in March, bringing the year-to-date performance close to +11%.

EuroStoxx 50 Index Source: BBC Market Data

In US stock markets, the S&P 500 Index rose by over 3% in March, bringing the year-to-date performance close to +6%.

S&P 500 Index Source: BBC Market Data

In Asian stock markets, the Hang Seng Index fell by over 1% in March, bringing the year-to-date performance close to +1%.

Hang Seng Index Source: BBC Market Data

What does the 2023 Spring Budget mean for the future of pensions?

On 15 March, the Chancellor made various policy announcements and pulled his rabbit from the hat: the lifetime allowance on pension savings would be abolished. However, those reading the small print noted the 25% tax-free portion of your pension would be capped at £268,275 (25% of the current lifetime allowance).

Expanded childcare support

To help parents with young children return to work, the government has proposed a series of reforms. This includes increasing the supply of childcare, offering an incentive bonus for registered childminders, and giving eligible households access to 30 hours of free childcare for children from nine months old (from September 2025). The combination of these new measures is hoped to reduce the average family’s childcare costs by almost 60%.

Lifetime allowance scrapped

The UK’s biggest employer’s the NHS, but due to current pension tax rules many experienced doctors are choosing to leave the workforce early to avoid high tax charges on their NHS pension savings, which can reach over £1,000,000 in value over their lifetime. In reaction, the government’s introduced three measures aimed at early retirees (and not just doctors): the annual limit on tax-relieved pension savings will rise from £40,000 to £60,000, the Money Purchase Annual Allowance‘s increasing from £4,000 to £10,000, and the lifetime allowance’s being scrapped entirely.

Impact on pensions

The government’s plan to boost the economy involves creating more jobs and getting money back through taxes. Most taxpayers help pay for current retirees’ State Pension through National Insurance contributions, while saving into their own workplace pensions under Auto-Enrolment rules. Recently there’s been more public awareness that our current State Pension’s unlikely to support a comfortable lifestyle and private pension savings are vital to achieving a happy retirement.

While the current Conservative government has scrapped the lifetime allowance, the Labour party has promised to overturn these changes if they come into power. With the next general election due on or before 17 December 2024, only time will tell how this will impact pension savers in future.

Now’s a good time to consider taking advantage of available government-backed benefits, such as the 25% tax top up on personal pension contributions. We’ve created a handy Pension Tax Relief Calculator so figuring out how much tax relief you could receive on your pension contributions is hassle-free. And with the new tax year around the corner, now may be the perfect time to water your pension pot.

Got a question? Get in touch

If you’re a PensionBee customer, you can read our Top 10 holdings in your pension blog to discover the companies your plan’s invested in, or visit our Plans page to see what investment types and locations your pension’s spread across. You can always send your investment comments and questions to our team via engagement@pensionbee.com.

Risk warning

As always with investments, your capital is at risk. The value of your investment can go down as well as up, and you may get back less than you invest. This information should not be regarded as financial advice.

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