It seems like only yesterday that we chewed over the detail in the UK Chancellor’s autumn statement, but yes, the spring budget is here next week, says Steve Berridge, Technical Manager at IFGL Pensions.

Falling as it does this year in the same month as Easter, many are wondering what sort of rabbits might “spring” from the Chancellor’s hat, in what could well be Jeremy Hunt’s final traditional March budget.

Certainly, recent headline economic news in the UK has not been rosy. Contrary to previous optimistic predictions about the improving picture for 2024, the UK officially slipped back into recession earlier this month, when economic data for Q4 2023 revealed a fall in GDP of 0.3%.

It was not all bad news, with consumer price inflation sticking at 4% (CPI index), a big improvement over the same data 12 months earlier. The unemployment rate is currently one of the lowest recorded since 1974 and data confirming that business activity across the UK private sector expanded for the fourth consecutive month in Q4.

Traditionally Governments about to enter an election period will offer a last-minute carrot to voters (continuing the Easter bunny theme here) but how much wriggle room does our Chancellor have?

With the tax burden on UK taxpayers the highest it has been since World War 2, a cut in income tax would be welcome, but expensive at a time that services are being cut due to lack of funding to local government.

Alternatively, a less costly but in many ways equally popular move would be to finally unfreeze the tax thresholds. It could be argued that this would encourage productivity, particularly amongst the middle-income workers who get hit by a double tax whammy when their earnings breach the £50,270 threshold.

This is the point where child benefit contracts and National Insurance marginal rates peak. The tax situation for earners in the £100,000 to £125,140 bracket is also particularly complicated thanks to the tapered annual allowance.

What about pensions?

We have now received the final form of the post life-time allowance pension taxation landscape and a complicated one it is too. Pension reform is likely to stay on this Government’s radar. The Chancellor’s Mansion House reforms announced changes to DB scheme investment funding.

There is likely to be a push from Government to encourage large DB schemes to invest more in unlisted shares.

This however is unlikely to affect private personal pensions and SIPPs.

The autumn statement included an announcement about a “pension pot for life” which got a mixed reception. Generally, the view that this was a “good idea but impossible to administer” was the prevailing one. It will be interesting to see if Mr Hunt follows up on this with more detail.

Of course, based on current predictions, there is a very real chance that by this time next year, we will have a new Labour Government and a new chancellor. Rachel Reeves initially said that she would reinstate the lifetime allowance, were a Labour Government elected. This remains to be seen, but the current Chancellor may feel at this stage there is little to be gained from announcing further reforms which may get retracted by his replacement.

Recent data showed that life expectancies in the UK have fallen since the COVID era, but at the same time a think tank suggested the UK retirement age might have to rise as high as 70. This definitely highlights the importance of private pension provision so we will be watching closely to see if any pension rabbits spring from the hat on Wednesday 6 March. Pensions remain very tax efficient vehicles, but at the same time require some understanding and are subject to a fast moving landscape.

For the international market, key takeaways from this are that pensions continue to provide opportunities. The protection from UK CGT on investment returns and UK IHT on the fund value should not be underestimated and the removal of the lifetime allowance charges means that funds can be accrued beyond the lifetime allowance now, with no fear of a potentially punitive UK tax charge when the benefits are withdrawn.

Of course this is now and by the time the 2025 spring budget comes around, the chairs may have been re-arranged again.

As the American mathematician and professor John Allen Paulos once said, “uncertainty is the only certainty there is, and knowing how to live with insecurity is the only security”.

By Steve Berridge, technical manager at IFGL Pensions