Retirement budgets remain strained
On November 17, UK Chancellor Jeremy Hunt addressed parliament with his Autumn Statement 2022. The government plan, alongside the Office for Budget Responsibility (OBR), acknowledges that the country is, indeed, in a recession that they forecast to last more than a year.
Along with decreased government spending, the nation’s budget will be bolstered mainly through adjustments to tax rates. The changes will affect some more than others. The outlook for most pensioners is not rosy, but not catastrophic either.
There was concern among investors prior to the Autumn Statement that pensioners would be hit with higher taxes on pension contributions or the current 25% tax-free pension withdrawal rule. However, neither of those regulations were changed. The Personal Allowance, National Insurance, and Inheritance Tax thresholds will remain unchanged until April 2028.
Retirees could feel the change to local council taxes. Currently, the council tax rate is 2%; with the new Statement plan, local authorities can raise their tax rate up to five percent.
For those in the position of incurring a Capital Gains tax, the annual exemption will be cut from £12,300 to £6,000 next year and then to £3,000 from April 2024.
Several beneficial changes to pensioners’ income enacted this year will remain in place and increase next year. These include:
- Benefits based on the state pension triple-lock method. Triple lock guarantees the value of state pensions will rise each year by one of these three measures, whichever is highest: wage growth, Consumer Prices Index (CPI), or 2.5 percent. September’s (the month used to calculate next year’s raise) CPI was 10.1%, so millions of state pensioners will see their payments increase by just over 10% in April 2023, from £185.15 to £203.85 a week.
- Cost-of-living payment Pensioners received a cost-of-living payment of £650 in 2022. They are also likely to receive next year’s cost-of-living payment, which has been upped to £900.
- Energy Price Guarantee (EPG) The government scheme will be extended to help with energy costs, but made less generous. An average household using a typical amount of gas and electricity will pay £3,000 annually, up from £2,500. The scheme will run for 12 months from April.
- Targeted help Government support for those on low incomes will include £300 to pensioner households and £150 to people on disability benefits.
While the Autumn Statement has worked to address budget-busting inflation, their solutions do not match current cost-of-living prices or 2023 predictions. Consequently, day-to-day expenditures are rising above the national inflation rate. For example, food price inflation rose from 14.6% to 16.4% – its highest level since 1977, with big increases in the cost of staples such as milk, butter, cheese, pasta and eggs. And, in many cases energy bills have more than doubled.
The Lifetime Allowance (LTA) is the amount of money workers can build up in their pensions without incurring a tax penalty. It is currently £1,073,100. This number has not changed; it is frozen until April 2026. Due to inflation, the purchasing power of that money becomes less every year.
The views expressed in this article are not to be construed as personal advice. You should contact a qualified and ideally regulated adviser in order to obtain up-to-date personal advice with regard to your own personal circumstances. If you do not then you are acting under your own authority and deemed “execution only”. The author does not accept any liability for people acting without personalised advice, who base a decision on views expressed in this generic article. Where this article is dated then it is based on legislation as of the date. Legislation changes but articles are rarely updated, although sometimes a new article is written; so, please check for later articles or changes in legislation on official government websites, as this article should not be relied on in isolation.
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