2021 Autumn Budget

Rishi Sunak delivered his third Budget on 27 October 2021.
Our view

On pensions, the Government has confirmed that it will address the problem for low earners in net pay schemes, with top ups to be paid from the 2024/25 tax year onwards. It will also look to simplify the operation of tax relief, but there were no significant changes to the structure or limits.

The Government has also confirmed it will make changes to the operation of the pension charge cap to allow increased investment in illiquid assets. This is a positive step towards creating a framework for such investments, providing greater opportunity for people to make good long term returns on their pensions, while actively contributing to the sustainability of our environment.

Here’s our summary of the proposed changes with links to the Budget documents if you would like more detail. 

Income tax

As already known, the personal allowance (the amount you earn before you start paying income tax) will stay at £12,570 in April 2022 and will remain at this level until April 2026.

For non-Scottish tax-payers, the amount people will have to earn before they pay tax at 40% will stay at £50,270 in April 2022 and will remain at this level until April 2026.

National Insurance

As already known, employees, employers and the self-employed will all pay 1.25p more in the pound for National Insurance contributions from April 2022.

From April 2023, National Insurance contributions will return to their current rates, and the extra tax will be collected as a new Health and Social Care Levy.

This levy, unlike National Insurance contributions, will also be paid by state pensioners who are still working.

Pensions

Net pay arrangement

2.33 Pension tax relief administration: Call for Evidence Response

The government will introduce a system to make top-up payments directly to low-earning individuals saving in pension schemes using a net pay arrangement from 2024/25 onwards. These top-ups will be paid after the end of the relevant tax year, with the first payments being made in 2025/26 and continuing thereafter. The top-ups will help to better align outcomes with equivalent savers saving into pension schemes using relief at source

Regulatory charge cap

2.45 - HM Treasury - Autumn Budget and spending review 2021 

The government will consult on further changes to the regulatory charge cap for defined contribution pension schemes. This will consider options to amend the scope so that the cap can better accommodate well-designed performance fees to ensure savers can benefit from higher return investments, while unlocking institutional investment to support some of the UK’s most innovative businesses. The government will continue wider policy work to understand and remove various barriers to illiquid investment.

5.21 - HM Treasury - Autumn Budget and spending review 2021 

The government will also consult before the end of the year on further changes to the regulatory charge cap for defined contribution auto-enrolment pension schemes to enable pension savers to benefit from better growth in their long-term investments. The consultation will specifically consider amendments to the scope of the cap to better accommodate well-designed performance fees and enable investments into the UK’s most productive assets, while continuing to protect savers

Lifetime allowance

As already known, the lifetime allowance will be maintained at the current level of £1,073,100 until April 2026.

Annual allowance

The annual allowance remains at £40,000 for 2022/23.

Money purchase annual allowance

The money purchase annual allowance remains at £4,000 for 2022/23

Tapered annual allowance

Threshold income remains at £200,000 and adjusted income at £240,000 for 2022/23.

Increasing normal minimum pension age

1.5 of Autumn Budget 2021: Overview of tax legislation and rates (OOTLAR)

The government will legislate in Finance Bill 2021/22 to increase the earliest age at which most pension savers can access their pensions without incurring an unauthorised payments tax charge, the normal minimum pension age, from 55 to 57. This increase will have effect from 6 April 2028.

Public service pension reforms remedy (McCloud) 

1.6 of Autumn Budget 2021: Overview of tax legislation and rates (OOTLAR)

As announced in the government’s Tax Policies and Consultations Command Paper published on 23 March 2021, the government will introduce legislation in Finance Bill 2021/22 with supporting regulations to ensure the pensions tax framework applies as intended to the public service pension reforms (the ‘McCloud’ case) remedy.

The Taxation of public service pension reform remedy tax information and impact note provides more information.

State pension

The earnings element of the ‘triple lock’ used to uprate the state pension and pension credit will be suspended. Instead, for 2022/23 the new and basic state pension, pension credit and survivors’ benefits in industrial death benefit will increase by the higher of CPI or 2.5%. CPI was 3.1% in September 2021 so the increase will be 3.1%.

Protection

In terms of protection there was nothing major of note announced. The previously announced increase in National Insurance contributions, dividend tax and corporation tax will make relevant life policies even more tax efficient compared to cover paid for personally and this will apply to existing as well as new polices of course.

Inheritance tax

The inheritance tax threshold will be maintained at the existing level of £325,000 until April 2026.

ISAs

2.79 - 2.80 HM Treasury - 2021 Autumn Budget 

The adult ISA annual subscription limit for 2022/23 will remain unchanged at £20,000.

The junior ISA annual subscription limit for 2022/23 will remain unchanged at £9,000.

Related documents

Useful links

Note

The information provided is based on our current understanding of the relevant legislation and regulations and may be subject to alteration as a result of changes in legislation or practice. Also it may not reflect the options available under a specific product which may not be as wide as legislations and regulations allow.

All references to taxation are based on our understanding of current taxation law and practice and may be affected by future changes in legislation and the individual circumstances of the investor.

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