With “a potential pool of seven people for every vacancy” on the job market and a near 50-year low in unemployment rates, it is unsurprising that the spring budget 2023 was billed the ‘back to work’ budget.
On the pensions side, reforms were announced aimed at removing restrictions on tax reliefs, perceived as current incentives for workers to reduce their hours or retire early. In a surprise to all, the chancellor announced the complete abolition of the lifetime allowance (LTA) – the ceiling on tax-relieved pension savings – which an individual can build up over their lifetime without incurring additional charges.
Other limits, including the annual allowance (AA), money purchase AA and tapered AA (together with the ‘adjusted income’ level at which the tapered AA applies to higher-earning individuals) all rose considerably. However, pension commencement lump sums (the sum a member can take tax-free when they become entitled to their benefits) will be limited to a frozen monetary amount (25 per cent of the 2022-23 LTA figure), unless a member holds a protected right to a higher sum.
In addition to these tax ‘simplifications’, and among many other pensions-related announcements, the government stated it will work with employers to encourage signposting employees to the ‘midlife MOT’ (aimed at supporting individuals with financial planning for later life).
Employers should ensure their schemes are ready to administer the tax changes – and consider how to communicate them to members, who are likely to have questions about current and future entitlements, protections and restrictions.
Together with their trustees and HR departments, they should also review their scheme’s benefit design, alongside related issues such as automatic enrolment eligibility, any alternative benefit provision that has been made in the past for high earners (in lieu of pension contributions) and death-in-service benefits provided outside the scheme (and which had been limited by reference to the LTA). The removal of the LTA might also prove a game changer for pensions projects that have stalled because of complex tax protections issues.
The chancellor set out three steps that he hopes will make it easier for the over 50s/early retired individuals to return to the labour market.
1. The ‘midlife MOT’ (see above).
2. ‘Returnerships’: a new type of apprenticeship, targeted at the over 50s returning to work, which will operate alongside skills boot camps and sector-based work academies, available to employees across the UK.
3. Pension reforms (see above).
In England, 30 hours of free childcare will be extended to every child over the age of nine months with working parents by September 2025. This will be introduced in phases, with 15 hours of free childcare for two-year-olds coming into effect in April 2024, and for children aged between nine months and three years in September 2024.
The chancellor also announced that there will be an increase in the supply of ‘wraparound care’ from 8am until 6pm for school-age children.
Sickness and disability
In England, there will be a new ‘universal support’ programme for people who are unemployed because of sickness or disability. The government will also boost funding for mental health and musculoskeletal resources.
A consultation will be launched on increasing investment in occupational health through the tax system. The date for the consultation has not been announced.
In a tight recruitment market, the initiatives outlined in the 2023 spring budget will likely be welcomed by employers tackling staffing shortages, providing an opportunity to rethink recruitment strategies.
In the longer term, the forthcoming extension of state-funded childcare provision in England may contribute to shrinking the gender pay gap: the high cost of childcare is thought to be a key factor in keeping mothers out of the labour market.
A similar impact may be seen in relation to the disability pay gap and the new initiatives around disability and sickness absence. And, as ever, employers will need to be mindful of their obligations to make reasonable adjustments to recruitment and onboarding processes in relation to job applicants/new recruits who are classed as disabled under the Equality Act 2010.
Sarah Maddock and Katharine Swire are senior knowledge lawyers and Calum Ross a trainee solicitor at TLT