Five ways the new fiscal year could affect your personal finances

The new fiscal year has already begun, which means there are some key changes happening that everyone should know about, including workers and people who have reached retirement age.

The cost of living crisis is set to put financial pressure on millions of households across the country as Ofgem’s 54 per cent energy price increase is now in effect, forcing many people to make drastic cuts in your expenses and expenses.

Steven Cameron, Director of Pensions at Aegon, explains other changes that could impact your personal finances between now and the end of this fiscal year on April 5, 2023.

Key Changes to Watch for This Year

  • State pension 3.1% increase
  • National Minimum Wage Increase
  • National Insurance rises 1.25%
  • Income tax threshold freeze
  • Life pension remains frozen

The state pension increases by 3.1%

The State Pension under the ‘triple lock’ is increased each year by the higher earnings growth, inflation or 2.5%.

For 2022/23, the UK government has removed the earnings component to avoid distortions created by the pandemic and furlough.

Steve explained: “As a result, this year the state pension will increase by 3.1%. This is only half the current inflation rate of 6.2% and could leave those heavily reliant on state pension, and already struggling with rising prices, severely pressured.

“However, the Bank of England’s latest prediction that inflation could hit 8% or more later in the year could mean we’ll see a big state pension increase in April 2023, thanks to the re-introduction of the triple lockdown, now confirmed by both. the Secretary of Labor and Pensions and the Chancellor. While it doesn’t ease current pressures, it could at least offset the rise in inflation below this year.”

Minimum wage increase offers pension benefit

The National Living Wage (NLW) has now increased by 6.6% from £8.91 to £9.50 per hour. This is not only good news for income, but also brings with it higher contributions to labor pensions, for those eligible, thanks to self-enrollment.

Steve said: “This will mean an additional £86 for pensions over the course of the year. Currently eligible employees working full time in NLW will have a total pension contribution of £798, rising to £884.

“While this may not sound like much, with compound investment growth over many years, even a small increase will pay off big for future retirement savings, especially for those early in their careers. It also makes it even more valuable to stay in your employer’s workplace pension plan.”

Social Security increase

National insurance contributions have now been increased by 1.25% for employees, employers and the self-employed, to provide additional funding for the NHS and for the state part of the welfare reforms that the UK government is currently finalizing.

While it is a worthwhile cause, it will increase employers’ payroll costs and reduce employees’ take-home pay.

Steve said: “There had been calls for the UK Government to defer the increase, but instead the Chancellor announced a major increase in the lower earnings threshold at which employees pay NI.

“This increases by £3,000 to £12,570 from 6 July 2022. This will be welcomed by many and will reduce the impact of the 1.25% increase, with people on the lowest incomes being the net winners.

“However, raising the threshold has longer-term consequences, as it will reduce the amount that is collected in NI from today’s workers to pay for today’s State Pensions. This could create longer-term challenges for the financing of state pensions.”

Income tax threshold freeze

Personal income tax relief and the top rate threshold will be frozen for four years from 2022/23 to 2025/26, instead of increasing in line with inflation as usual.

Steve explained: “As a result, due to inflationary increases in earnings, millions will find a greater proportion of their earnings subject to income tax. For example, someone who earned £30,000 last year and receives a pay rise of 4.8% of the national average will pay an additional £693 in income tax next year.

“In addition, many more people will find that they become higher rate filers even though their income has not increased in line with inflation. Here, anyone who earned more than £48,000 last year and receives the national average income increase of 4.8% will pay a higher rate of tax on some of their income next year.”

Life pension remains frozen

The lifetime pension allowance will remain at £1,073,100, having been frozen last year.

This means that people will pay an additional tax if their pension fund grows above this amount.

Steve commented: “The lifetime allowance of £1,073,100 may seem like a huge sum, but it affects more people than you think. For someone aged 65, this will buy an income of around £29,600 a year rising in line with inflation before tax, after base rate tax this equates to a monthly income of £2,180.

“Many of those affected by this change have simply been doing the right thing, saving regularly for many years, or have benefited from good investment growth in their defined contribution pension.”

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He added: “In the current climate of rampant inflation, continuing to freeze the amount that can be saved in a pension without incurring a tax charge will have an adverse impact on an increasing number of people.”

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