The UK’s Autumn Budget of 2024, presented by Chancellor Rachel Reeves, introduced several significant changes to the pension landscape. Here’s an overview of the key reforms and their implications:
State Pension Increase
The government has committed to maintaining the State Pension Triple Lock for the duration of this parliament. Consequently, the basic and new State Pension will rise by 4.1% from April 2025, aligning with earnings growth—the highest measure under the Triple Lock this year. This increase translates to an additional £470 annually for over 12 million pensioners in the UK.
Inclusion of Pensions in Inheritance Tax (IHT)
A notable change is the inclusion of most unused pension funds and death benefits within the scope of Inheritance Tax from April 2027. This adjustment encompasses death benefits payable from defined benefit pension schemes, regardless of whether a beneficiary is chosen at the trustees’ discretion. A consultation has been launched to gather views on the processes required to implement these changes.
National Living Wage and National Minimum Wage Increases
From April 2025, the National Living Wage for workers aged 21 and over will increase by 6.7%, rising from £11.44 to £12.21 per hour. Similarly, the National Minimum Wage for 18 to 20-year-olds will see a significant boost of 16.3%, reaching £10.00 per hour. These adjustments not only enhance take-home pay but also positively impact pension contributions, as higher earnings lead to increased amounts being set aside for retirement.
Employer National Insurance Contributions
To raise funds for public services, employer National Insurance contributions will rise by 1.2%, bringing the rate to 15% from April 2025. Additionally, the threshold at which employers start paying National Insurance will decrease from £9,100 to £5,000. However, to support smaller businesses, the Employment Allowance will increase from £5,000 to £10,500, exempting many from these higher contributions.
Capital Gains Tax Adjustments
Capital Gains Tax rates have been adjusted, with the lower rate increasing from 10% to 18% and the higher rate from 20% to 24% for disposals made on or after 30 October 2024. This change may influence investment strategies, particularly concerning assets held outside tax-efficient accounts like ISAs or pensions.
Future Outlook
While the Autumn Budget introduced significant changes, particularly concerning the taxation of pension assets upon death, it refrained from altering pensions tax relief or the tax-free lump sum. However, with ongoing reviews and the government’s focus on leveraging pension funds for economic growth, further reforms may be on the horizon. Staying informed and consulting with financial advisors will be crucial for individuals aiming to navigate these evolving policies effectively.