Rachel Roberts provides a summary of the Budget announcements concerning the labour market, which include childcare reforms and pension reforms.
Childcare reforms
As part of his 2023 Spring Budget, chancellor Jeremy Hunt announced a number of reforms to childcare support available, to help parents return to work after having children.
One of the main measures was extending the existing provisions by allowing working parents in England access to 30 hours of free childcare per week, for 38 weeks of the year, from the point their child reaches 9 months old to the age of 5 when they start school.
However, in order to ensure there is sufficient funding, this will be rolled out in various stages over the next 2 years. Starting from April 2024, all working parents of 2-year-old can access 15 hours per week of free childcare and from September 2024 this age range will be extended to aged 9 months up to 3 years. From September 2025 all working parents of children aged 9 months up to 3 years old can access 30 hours free childcare per week, on top of existing provisions for 3-5year olds
This will provide much needed assistance to those who have had children and are worried about the costs of childcare meaning they are unable to return to work. The average cost of full-time childcare for children under 2 years is currently £263.81 a week which for many families can mean a part time career break to have children turns in to a full-time career end with 2022 stats showing only 75% of woman return to work in the 5 years after having children.
It is not only those with children under the age of 5 that face problems returning to work due to the cost of childcare. Working parents with school age children also face problems with arranging wraparound childcare (I.e. before and after school clubs) as one third of primary schools do not offer such a service.
In order to help combat this, and make it easier for those with school age children to continue working full time, the Government announced a funding package for local authorities that they hope will mean all schools will be able to offer wraparound childcare by September 2026.
Pension reforms
Jeremy Hunt has also confirmed a reform to pension contribution allowances. Previously, a £40,000 annual limit was placed on the total tax-relieved pensions savings an individual could make each year, prior to a 45% tax charge being levied. However, to encourage highly skilled individuals to remain in employment, the government will raise the Annual Allowance from £40,000 to £60,000 from April 2023. Furthermore, the level of income at which the annual allowance begins to be reduced (the adjusted income) is set to be increased from £240,000 to £260,000 together with an increase the allowable minimum allowance which will be increased from £4,000 to £10,000, a welcome change.
There was widespread talk prior to the Budget that the Pensions Lifetime Allowance would be increased to £1.8m, but it was announced that the government will remove the Lifetime Allowance charge from April 2023, before the allowance is abolished entirely from April 2024.
With the current lifetime limit set at £1,073,100. Individuals who exceeded this threshold were impacted by a significant pension tax charge; 25% if the money is vested to provide pension income, or 55% if drawdown as a lump sum. This particularly impacted doctors, who often incurred unexpected charges as a result of the 2015 NHS career average scheme. Consequently, because of the way pension taxes worked, employees were often considering early retirement.
This is a welcomed change by many as it hopes to incentivise individuals to remain in or return to work and remove the headache of pension taxes for most people.
Mr Hunt also announced an increase to the Money Purchase Annual Allowance from £4,000 to £10,000. This hopes to encourage more experienced workers to remain or re-join the labour market by increasing the amount they can contribute to a pension scheme when they have already accessed their pension savings.
If you have any questions about how the budget or its proposed reforms might affect you, do get in touch on 01242 776000 or tax@randall-payne.co.uk.
