Neil Richardson, Dental Regional Manager at Wesleyan Financial Services, shares how the Spring Budget’s biggest announcement can be addressed from a financial planning perspective…
In the Spring Budget, the Chancellor of the Exchequer, Jeremy Hunt, made a few shock announcements in regard to pension allowances.
The big hitter was that the £1.073 million Lifetime Pension Allowance (LTA) would not apply altogether from the 2023/24 tax year starting on 6 April 2023. A move the Chancellor said would mean an estimated 80% of NHS doctors will not receive a tax charge on pension savings. This, of course, also spelled good news for dentists who could also benefit from significant tax savings.
But is this too good to be true?
Putting the genie back in the bottle
The Labour Party has been very outspoken against the abolishment of the LTA, referred to by party members as a ‘gilded giveaway’, and has pledged to reverse the changes to tax-free allowances.
Those with their eye on the tax efficiencies of pensions will need to think about the next General Election in January 2025, which may present the possibility of a Labour government.
It’s worth considering should Labour reverse these changes, whether they will be applied retroactively or if the LTA will simply be reinstated from 2026. Could an incoming government backdate the changes, resulting in tax charges becoming due on pension savings that were non-taxable under the rules in place when those contributions were made?
The key issue is that the LTA has not been fully abolished – it won’t apply from the 2023/24 tax year, but until the correct legislation (Finance Act) has been put in place on 6 April 2024, we could be looking at a one-year-only tax holiday.
This puts those who are due to retire imminently (within the 2023/24 tax year) in a unique position, with the opportunity to crystalise (access and cash-in) their pension and sidestep the significant 55% tax charge that could impact pension benefits in excess of the LTA.
What needs to be considered?
In times where there is a perceived deadline, there is a heightened risk of hasty decision-making, especially when you aren’t armed with the facts or are influenced by the actions of peers.
As with any financial planning, due diligence needs to be undertaken to avoid potentially irreversible courses of action that may not be in your best interest when all is considered. The right course of action when it comes to exiting the dental profession will vary from dentist to dentist – what’s right for one person may not be right for you.
For dentists, accessing retirement provisions has an extra layer of complexity due to the variety of income streams available – whether that be the NHS pension scheme, a personal pension, investments, your dental practice as a retirement nest egg, or a mixture of some or all of the above.
Your personal circumstances also play a key part in your readiness to retire. Do you still have financial dependents or are you still paying off your mortgage? Your household expenditure – household bills and essential spending – will dictate a certain threshold you need to meet.
Seek advice from specialists
One thing that can be taken from this uncertainty is that there’s never been a better time to review your retirement planning and pension provisions.
There are opportunities to be explored to be certain - tapping into the expertise of a Specialist Financial Adviser will mean you make decisions from a fully informed position, helping minimise the risk of unforeseen financial penalties in relation to your retirement plans.
You can speak to a Specialist Financial Adviser at Wesleyan Financial Services as part of a no-obligation financial review by visiting wesleyan.co.uk/dental or calling 0800 316 3784.
Please note: Tax treatment depends on individual circumstances and may be subject to change in future.
About Neil
Neil Richardson is a Dental Regional Manager at Wesleyan Financial Services, leading a team of Specialist Financial Advisers who primarily work with dentists, their families and their practices to secure their financial futures.
‘WESLEYAN’ is a trading name of the Wesleyan Group of companies.
Wesleyan Financial Services Ltd (Registered in England and Wales No. 1651212) is authorised and regulated by the Financial Conduct Authority and is wholly owned by Wesleyan Assurance Society. Wesleyan Assurance Society is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. Incorporated in England and Wales by Private Act of Parliament (No. ZC145). Registered Office: Colmore Circus, Birmingham B4 6AR. Telephone: 0345 351 2352. Calls may be recorded to help us provide, monitor and improve our services to you.