How will the Autumn Statement impact my pension?
The Autumn Statement was a crucial opportunity for the chancellor to inject some much-needed optimism into politics ahead of a planned general election next year
Budgets can be either silent on pensions or very loud indeed, with little middle ground, but yesterday brought several notable changes that, while not earth-shattering, will be of interest to policy experts and retirees alike
NMTBP rounds up the main changes
What will happen to the state pension?
The full State Pension will rise by around £900 to £11,502.40 in the 2024/25 tax year (£221.20 a week). For tax year 2023/24 it’s currently £10,600 a year or £203.85 a week
The 8.5% increase means the government has stuck to its triple lock promise, which is to ensure that the State Pension rises in line with the largest of these three figures:
- average earnings;
- inflation; or
- by 2.5%.
According to the Office for National Statistics (ONS), figures show that the annual growth in employees’ average total pay (earnings) was 8.5% in May to July 2023, which has determined the triple lock rate
There had been concerns the government would look to reduce the State Pension increase, as official figures showed inflation slowed to 4.6% in October 2023. But with a General Election expected in 2024, it would have been a brave move to tinker with the triple lock and may have risked alienating retired voters
What’s happened to pensions and inheritance tax?
In the lead up the Autumn Statement last week there was plenty of heat and light over apparent plans to scrap inheritance tax (IHT), a change that would benefit a relatively small number of people during a cost of living crisis. Given the obvious political ramifications of tinkering in this way, no such policy emerged, leaving IHT untouched for another day
Perhaps in parallel, the government also backed down on a proposal to tax inherited pensions when policy holders pass away before they turn 75. The current framework of taxing inherited pensions at the recipient’s marginal rate of income tax in the event members die over 75 remains too
What else wasn’t in the Autumn Statement?
Inheritance tax changes weren’t the only thing absent yesterday
It was barely a surprise that the private pensions allowances didn’t feature in the speech itself. After all, the government scrapped the Lifetime Allowance on pensions contributions at the Budget earlier this year, removing the ceiling at which savers can contribute to pensions without paying an additional charge. However, savers will note from the documents published alongside the Autumn Statement speech yesterday that the government has now confirmed the charge will be scrapped from April 2024
What is Pot For Life?
Far from a surprise jaunt down the avenue of long-term pharmaceutical exploration, Pot For Life is actually about pensions – and specifically auto-enrolment, which automatically puts eligible new workers into a default pension arrangement when they start a new job
Under previous rules, the onus fell on employers to sign workers up to a pension plan when they arrived at businesses. But there were concerns the fluid nature of the British workforce would potentially land employees with dozens of different pots (and investment strategies) throughout their working lives
Under fresh proposals, individuals will now have more of a say. The pensions industry will no doubt consult at length about it, but in theory new entrants to the workforce will get power over which pot they choose to start saving in – and the simplicity of that being their main workplace pot in perpetuity
Was there anything else important?
It was hardly the rabbit-out-of-the-hat policy glamour you might have expected of a chancellor keen to impress, but there were other crucial changes to the way the UK invests via pensions and ISAs. A separate explainer on ISA changes can here found here and the main tax changes are summarised here
Jeremy Hunt’s Mansion House pension reforms have already been the subject of much debate, as the decision to encourage pension schemes to invest in more UK growth companies is just a little bit controversial. But yesterday the chancellor provided more detail, starting with the defined contribution (DC) pensions industry
In a consolidating move that seems to mirror many of the mergers and acquisitions that have already begun to define the wider asset and wealth management world, Hunt told MPs that, by 2030, the majority of workplace DC savers will have their pots managed in schemes of over £30 billion. In addition, all local government pension funds will be invested in pools of £200 billion or more by 2040
Finally, the Pension Protection Fund – a lifeboat that steps in when pension schemes go bust – will take on an additional role as a consolidator of smaller defined benefit pension schemes that may be unattractive to larger schemes