Pension updates from the Autumn Statement
On 22 November 2023, Chancellor Jeremy Hunt delivered his Autumn Statement, setting out the Government’s key commitments and objectives for the UK economy. The announcement contained some measures that could affect your pension planning.
Triple lock and Lifetime Allowance removal confirmed
The State Pension is usually increased each year by an amount determined by either the rate of inflation, the annual rise in national average earnings, or 2.5%, whichever is the highest. This so-called “triple lock” was confirmed in the Autumn Statement to apply in 2024. From April 2024, State Pensions will therefore increase by 8.5%, the figure taken from the earnings index to the previous September.
That’s more than the current rate of inflation, which means that Britain’s pensioners will be better off in real terms as a result. This is the first time in several years that the State Pension has increased by more than the rate of inflation.
The Chancellor also confirmed one of the proposals from his Spring Budget earlier this year: the removal of the Lifetime Allowance from April 2024. This measure has not yet become law, but when it does, there will be no limit on the total value of pension savings you can build up in your lifetime without having to pay extra tax.
National Insurance contributions reduced
One of the headline measures was the reduction in the main rate of employee National Insurance contributions, from 12% to 10% from 6 January 2024. This potentially means millions of people getting more money in their pocket each payday.
That could ease the pressure at a time when many are still struggling with the cost of living. It could also present an opportunity for people to put a little more aside for their future – perhaps by increasing contributions to their pension.
“Pots for life” proposed
The Chancellor also announced consultation on the idea of “pots for life” for defined contribution pension savers – a system similar to that currently in place in Australia.
Currently, employees usually join a new company pension scheme every time they change employer. In a “pot for life” system, you would have the right to ask your new employer to pay into your existing pension account.
This potentially simplifies things for savers, who often have lots of small pots of pension savings relating to different jobs they’ve done throughout their career. Having all your savings in a single pot would make it easier for you to keep track of what you have and take ownership of how you use it.
However, there are various complexities to consider, including the systems required to administer such payments, the controls around ensuring “pot for life” providers offer good value for money, and the impact of weakening the connection between employers and the pension provision they make as part of their benefit package.
There are also concerns that this move might undermine the development of pensions dashboards. These online tools are designed to solve some of the same problems: savers losing touch with their pensions and not knowing how much they have in total.
The consultation will explore these challenges and we’ll keep you informed of the outcome, as well as keeping you updated on any other pensions news.
In the meantime, if you have several past pensions from previous employments, you may wish to consider consolidating by transferring them into a single pension plan – particularly pension pots which have high charges but have not demonstrated value for money. You should consider taking independent financial advice before making any decision to transfer.