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Watch our short video to hear the thoughts of Tim Fassam, Director of Public Affairs, on the Autumn Statement announcements. These include the end of the lifetime allowance, new ISA flexibility and potentially radical reforms to pension saving.
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With Jeremy Hunt confirming that the three economic priorities set out in January 2023 have been met, the Chancellor’s focus has now turned to achieving higher growth and higher productivity.
We’ve sifted through the 110 measures to pick out these key messages for your clients:
- Abolition of the lifetime allowance continues as planned, with further details to be confirmed in the Autumn Finance Bill 2023
- National Insurance cuts for the employed and self-employed – but watch out for those different start dates
-
ISA regime gains additional flexibility
Here’s our summary of the key points from the Autumn Statement.
Pensions
The abolition of the lifetime allowance
The Autumn Finance Bill 2023 will include legislation to remove the lifetime allowance from 6 April 2024 as originally planned, despite speculation this may have been delayed. The Bill clarifies the taxation of lump sums and lump sum death benefits, the application of protections, as well as the tax treatment for overseas pensions and transitional arrangements.
Some of the key revisions are:
- Welcome confirmation that on death before age 75, beneficiaries’ annuities and beneficiaries’ drawdown will continue to be excluded from income tax up to the death benefit limit, giving certainty to your clients' planning.
- The tax-free element of
o trivial commutation lump sums,
o winding up lump sums and
o small lump sums
will not be deducted from the new thresholds. However, an individual must have available thresholds to be able to take those lump sums.
- A pension commencement excess lump sum will be introduced as a fully taxable lump sum option once the lump sum allowance has been exhausted.
- A new ‘overseas transfer allowance’ will be introduced for transfers to Qualifying Recognised Overseas Pension Schemes. This allowance will be equal to the level of an individual’s lump sum and death benefit allowance.
State Pension
The State Pension is set to rise by 8.5% from April 2024, as the triple lock remains in place.
In real terms, the full new State Pension will increase from £203.85 per week to £221.20.
For those who reached State Pension age before 6 April 2016, the basic State Pension per week will increase from £156.20 to £169.50.
Small pots - a pension for life, not just for one employment
The government is launching a call for evidence on a lifetime provider model which would allow individuals to have contributions paid into their existing pension scheme when they change employer.
This approach would allow individuals to have one pension pot, rather than many, and means an employee would not have to be enrolled into a different scheme each time they change employer.
Value for Money
The Financial Conduct Authority (FCA) and the Pensions Regulator (TPR) have announced next steps towards implementing the Value for Money framework in the defined contribution workplace pensions market.
The FCA will consult on rules for contract-based schemes in Spring 2024, working closely with the government and TPR for consistency with trust-based schemes.
Long-term investment or low fees
The government plans to engage with the industry on proposals to ensure that all aspects of the pensions market are supporting the best outcomes for savers. This includes considerations to shift employer incentives away from low fees towards long-term pension investment performance.
The Pensions Regulator (TPR) will provide further information for employers on what factors should be assessed when they are selecting a pension scheme.
National Insurance Contribution Cuts
The government has announced a range of proposals to cut National Insurance (NI) contributions for employees and the self-employed.
Class 1
The government is cutting the main rate of Class 1 employee NI contributions from 12% to 10%. This will take effect from 6 January 2024.
Class 4
The government is supporting the self-employed by cutting the main rate of Class 4 NI contributions from 9% to 8% from 6 April 2024.
Class 2
The government will abolish Class 2 NI contributions from 6 April 2024. People will continue to get access to contributory benefits including State Pension through NI credits without paying NI as they do now.
Those with profits under £6,725 and others who pay Class 2 NI contributions voluntarily to get access to contributory benefits including the State Pension will continue to be able to do so. For those paying voluntarily, the government has decided to maintain the current rate of £3.45 per week for 2024-25.
Individual Savings Accounts (ISAs) - evolution not revolution
There’s no change to ISA subscription limits but the government has announced proposals to make ISAs simpler for your clients. The proposals include:
- Allowing multiple ISA subscriptions to the same type of ISA, in the same tax year and partial ISA transfers. This should help combat the issue where clients have been locked into a less competitive rate earlier in the tax year.
- Aligning the subscription ages for all adult ISAs to 18.
Proposals have also been announced to widen the scope of the investments that could be held within Innovative ISAs to include Long Term Asset funds and open-ended property funds with extended notice periods. The proposal also includes the addition of fractional share contracts.
Further details will be published early in 2024.