Autumn Statement 2023

Our view

We now have the confirmation that removal of the lifetime allowance will be going ahead in April 2024. We know the devil will be in the detail which we are expecting in the Finance Bill coming soon, and we hope to get clarification in how this will be implemented. Until we get this clarity, making decisions and advising on the lifetime allowance will remain challenging for advisers.

Allowing members to choose their own pension scheme sounds like a great idea but, in practice, workplace pensions already offer more investment choice than most people need. And they are highly regulated with capped charges, whereas this change could lead to a pensions system dominated by prolific marketing, higher charges, and ultimately some higher risk pension schemes. Automatic enrolment into workplace pensions has been a huge success story and the relationship between employers and their employees is pivotal to this. A ‘pot for life’ model would significantly undermine this dynamic by requiring employers to navigate an increasingly complex array of payments to different providers. 

Income Tax

No changes to income tax rates from 6 April 2024 were announced. 

National Insurance

HM Treasury - Autumn Statement 2023 3.10

From 6 January 2024, class 1 National Insurance contributions for the employed will reduce from 12% to 10%. This means:

• Class 1 National Insurance contributions employees will pay 10% on their earnings between the primary threshold and the upper earnings limit; between £12,570 and £50,270.
• Class 1 National Insurance contributions employees pay 2%, on their earnings above the National Insurance contributions upper earnings limit.

From 6 April 2024

• Class 2 National Insurance contributions (£3.45 a week) for the self-employed will be abolished.
• Class 4 National Insurance contributions on profits between £12,570 and £50,270 will reduce from 9% to 8%.
• Class 4 National Insurance contributions on profits over £50,270 will remain at 2%.

Pensions

Lifetime allowance

HMRC policy paper – Abolition of the LTA 

As announced in the Spring Budget, the lifetime allowance will be abolished from 6 April 2024 - the legislation for this will be in the Autumn Finance Bill. 

The measures will clarify the taxation of lump sums and lump sum death benefits, and the application of protections, as well as the tax treatment for overseas pensions, transitional arrangements, and reporting requirements.

• The maximum pension commencement lump sum for those without protections will be kept at 25% of the fund up to a maximum of £268,275 (25% of the lifetime allowance of £1,073,100). The figure of £268,275 will be frozen thereafter.
• The tax-free element of a trivial commutation lump sum, winding up lump sum and 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. 
• The lifetime allowance excess lump sum will be removed in the absence of the lifetime allowance. Instead, a pension commencement excess lump sum will be introduced. Payment of a pension commencement excess lump sum will be taxed at an individual’s marginal rate of income tax.
• For individuals with valid enhanced protection, the tax-free part of any serious ill health lump sum or lump sum death benefit will be limited to the total value that could have been paid under that arrangement on 5th April 2024. Marginal rate of income tax will be applied on any excess.
• On death before age 75 beneficiary drawdown plans and beneficiary annuities will continue to be excluded from income tax, maintaining the current treatment.
• To account for benefits taken before 6 April 2024, a transitional calculation will be provided so individuals can calculate their available lump sum allowance and lump sum and death benefit allowance. 
• Where an individual has previously used 100% of their lifetime allowance, they will have exhausted their allowances, and the transitional calculation will not apply.
• 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 of £1,073,100.
• Where the total value of an individual’s transfers from registered pension schemes to a qualifying recognised overseas pension schemes exceeds their available allowance, the excess will be subject to the overseas transfer charge. 

State pension

HM Treasury - Autumn Statement 2023 - 5.29

The Government is maintaining the triple lock. The Basic State Pension, new State Pension and Pension Credit standard minimum guarantee will be uprated in April 2024 by 8.5%, in line with earnings growth in September 2023

Mansion House reforms

The Autumn Statement builds on the Chancellor’s Mansion House speech in July. This announced a package of measures to reform the pensions market and was supported by several consultations, to which the Government has responded:

Saver choices at retirement

HM Treasury - Autumn Statement 2023 - 5.102

Helping savers understand their pension choices: supporting individuals at the point of access: places duties on occupational pension scheme trustees:

• To offer a decumulation service with products to individuals at the point of access at an appropriate quality and price.
• To devise a backstop default decumulation solution, based on the general profile of their members, that an individual would be placed into if they access their pension assets without making an active choice on how to access their pension funds (for example, simply taking the tax-free cash lump sum).

Ending the proliferation of small pots

HM Treasury - Autumn Statement 2023 - 5.103

The Government is introducing a multiple small pot consolidator model. This will see a small number of schemes authorised to combine pension pots under £1,000.

At the same time, it has issued a call for evidence Looking to the future: Great member security and rebalancing risk. The Government wants to explore if a lifetime provider model would improve outcomes for savers, how it can grow the collective defined contribution market, and whether there are synergies between the two.

Long-term investment for technology and science  

HM Treasury - Autumn Statement - 5.107

£250 million will be committed to two successful bidders under the Long-term Investment for Technology and Science initiative, subject to contract. This will create new investment vehicles tailored to the needs of pension funds, and together with other sources, will provide over a billion pounds of investment into UK science and technology companies.

Government response to options for defined benefit schemes

HM Treasury - Autumn Statement - 5.11

DWP will launch a consultation this winter on the appropriate regime under which surpluses can be repaid and enabling 100% Pension Protection Fund coverage for DB schemes that opt to pay a higher levy. The authorised surplus payments charge will be reduced from 35% to 25% from 6 April 2024.

Savings

ISAs

HMRC Autumn Statement 2023 — Overview of tax legislation and rates (OOTLAR) - 2.5 to 2.9

Subscription limits from 6 April 2024 are unchanged.

• Adult ISA annual subscription - £20,000
• Child Trust fund - £9,000
• Junior ISA - £9,000
• Lifetime ISA - £4,000

ISA simplification

HMRC Autumn Statement 2023 — Overview of tax legislation and rates (OOTLAR): 2.10 

The Government has announced measures to simplify how ISAs work and to widen the scope of what an ISA can invest in.

From 6 April 2024:

• Multiple subscriptions will be allowed in each tax year to ISAs of the same type.
• Where an existing ISA account has received no subscription in the previous tax year the requirement to make a fresh application will be removed.
• Partial transfers of current year ISA subscriptions between providers will be allowed.
• Harmonise the account opening age for any adult ISAs to 18.

The Government also announced they will digitise the ISA reporting system to enable the development of digital tools to support investors.

To widen the scope of investments, from 6 April 2024:

• Long-term asset funds will be permitted investments in the innovative finance ISA.
• Open-ended property funds with extended notice periods to be permitted investments in the innovative finance ISA.

The Government will engage with the finance industry on allowing certain fractional shares contracts to become permitted ISA investments.

HMRC will set up stakeholder forums and communication channels for ISA managers and relevant trade bodies over the next few months to ensure the pace and sequencing of the move to a digital system reflects the needs of ISA providers and investors, as well as the requirement to upgrade HMRC’s own infrastructure.

Help to save – The Government is reforming the Help to Save Scheme, details of this will be published in due course.