Autumn Budget 2024 | Pensions largely unscathed

When Chancellor Rachel Reeves took to the despatch box on Wednesday lunchtime, the pension industry was braced to hear what announcements would affect the industry and how existing tax allowances were going to be cut. To our surprise, private pensions and auto-enrolment were areas largely untouched, with the Chancellor generating £40 billion worth of tax increases elsewhere, but UK businesses are still looking set to foot at least part of the bill.

The general consensus across the pension industry was that as the private pension market has been untouched for so long, coupled with the attractive tax efficient design of auto-enrolment, pensions would become a happy hunting ground for Labour to achieve some of their tax rises to fill the £22 billion blackhole left by the previous Conservative Government. Probably to avoid negative headlines, individual tax allowances that would affect all pension members wouldn’t be touched, but instead it was thought abolishing the employer tax efficiencies for operating a company pension plan through salary sacrifice, would be targeted. By operating a pension via salary sacrifice, an employer can create an Employer National Insurance cost saving on employee contributions. Again, to the industry’s surprise, this was not targeted.

Instead, The Chancellor has targeted Employer National Insurance as a whole, with two key elements changing. The rate of contribution will be increasing from 13.8% to 15%, from April 2025 and the secondary threshold that employers start paying national insurance will reduce from £9,100 to £5,000 of an employee’s salary. The only caveat to this is for smaller employers, where the employment allowance will increase to £10,500. Rachel Reeves has claimed these changes will raise £25 billion pounds by the end of the forecast period.

Private pensions didn’t escape the new government’s attention, with defined contribution pensions (the most common type of pension within the UK and largely used for auto-enrolment) set to be included within an individual’s estate from April 2027 and subject to Inheritance Tax (IHT) rules. With pensions excluded from IHT currently, an individual can pass on any remaining pension pots to a beneficiary/loved one if they die before the age of 75, tax free. This change brings the need for proactive pension management and financial planning even more into the spotlight.

On a positive note, the changes made to pensions do not affect the tax efficiencies created for savers, with the rate of tax relief on contributions, amount individuals can save per tax year, investment growth and the amount you can draw on your pension tax free, remaining untouched. This keeps an individual’s lifetime pension journey looking attractive.

When it comes to pension changes Labour is yet to make any real impact since coming into power, and their short and long terms intentions are still unknown. The previous Government has left nearly 15 ongoing projects across varying areas of pension and specifically auto-enrolment, leaving Emma Reynolds the Pensions Minster, plenty to be getting on with. Taking this into consideration, a priority project list needs to be created tackling the most important aspects of pensions that effect members and their ability to generate a retirement fund that comfortably supports their lifestyle during their final third of life. From Connor Broadley’s perspective, this would include addressing contribution rates, tracing and consolidating pension pots and the current lack of guidance an individual has easy access to when planning for retirement or drawing on their pension.

In other areas no shock announcements were made in relation to the State Pension, the Chancellor confirming the State Pension will rise by 4.1% next April, in line with the Triple Lock formula.

As ever if you have any questions in relations to the latest announcements or would like to discuss your existing auto-enrolment pension, please do not hesitate to get in touch with your Connor Broadley contact. Alternatively, please email teambc@connorbroadley.co.uk