Autumn Statement 2023 Report
On Wednesday 22 November, The Chancellor, Jeremy Hunt announced his Autumn Statement. With talk in the media beforehand about changes to Inheritance Tax, and perhaps an increase in the ISA allowance, there was no mention of either.
We’ve asked Jack Farmer, Financial Planner, to highlight the main takeaways from the statement and explain how they might affect you.
Consultations to Happen Regarding Workplace Pensions
What could perhaps be the biggest change to workplace pensions since auto-enrolment that was introduced in 2012, is the government’s plans to look at a ‘pension pot for life’. One issue that comes with changing jobs is a new workplace pension being setup for you, which can often lead to various pots accumulating, making it harder to keep track of who your pensions are with and where they’re invested.
The government will explore options and evidence on how they could implement a ‘pot for life.’ This means that when you change jobs, your next employer would have a legal right to pay contributions into a pension of your choice, rather than one they setup.
This is very much early days with no dates confirmed, but it would be a welcomed change for many and would hopefully encourage more attention towards pensions. I still believe there is more work involved to make sure that pensions offer good value for people and that investments are suitable, but it is a step in the right direction.
The State Pension is Increasing
The state pension increases every year by something called the ‘triple lock guarantee,’ which means that it will increase by the higher of the growth in average earnings, inflation (based on the Consumer Price Index) and 2.5%. This tax year, the state pension increased by 10.1%. Hunt announced that it will be increasing by 8.5% in April 2024, keeping to their triple lock guarantee.
This is obviously a pleasing sight for many pensioners, as countless people’s costs have increased due to inflation. For those already receiving the maximum state pension, you will see an increase of £902.20 a year, taking the full annual state pension amount to £11,502.40 p.a.
The Employed and Self-Employed Will Benefit From a Cut in National Insurance
This was very much the rabbit out of the hat as no one was expecting a cut to National Insurance, although again pleasing to hear. National Insurance is paid from earned income (it isn’t taken from pension income or rental income) and helps to fund things like the NHS and builds up your entitlement to the state pension.
Those that are employed pay Class 1 rates at 12% on earnings between £12,570 and £50,270. This is being cut by 2% to 10% from the 6th January 2024. This would result in a maximum saving of up to £754 p.a.
For those that are self-employed, Class 2 rates of £3.45 per week will be abolished, and Class 4 rates will be cut from 9% to 8% for profits between £12,570 and £50,270. Both cuts would result in a maximum saving of up to £556.40 p.a. for the self-employed. These changes will come into effect from the 6th April 2024.
Self-employed people pay Class 2 National Insurance contributions, to build up their entitlement to benefits and the state pension. Hunt confirmed that there will be no impact on this, despite abolishing the Class 2 rate.
ISAs are changing
Currently, those over the age of 16 can open a Cash ISA, but this will increase to 18 from April 2024. Those under the age of 18 can still contribute up to £9,000 p.a. to a Junior ISA. This wasn’t mentioned till after his initial announcement!
You will also be allowed to open multiple ISA’s of the same type from April 2024, without affecting the tax free status of your ISA money. Currently, you can only pay into one of each type of ISA e.g. Cash and Stocks & Shares.
From April 2024, it will also be possible to do partial transfers of ISA funds. At the moment, there are separate rules for the transfer of current and previous years subscriptions. While it is possible to do a partial transfer of previous years subscriptions, transfers of current years subscriptions must be for the whole amount including the attributable investment growth. This will be relaxed from April allowing partial transfers to apply to all ISA subscriptions whenever they were made.
Overall, there were fewer changes than what was expected, but the changes that have been announced from a personal perspective are welcomed overall. The reduction in National Insurance rates and maintaining the triple lock guarantee (for now) will help many people to manage with the cost of living. It is also positive to see some alignment regarding ISA ages. We’ll be keeping a close eye on the consultations around a ‘pension pot for life’ and will keep you updated as and when we know more.
There was a lot to digest, so we’ve put together our Autumn Statement 2023 Report, with details of the current economic background, all the measures announced by The Chancellor and what they could mean for you.
As always, if you have any questions about what was announced, then please don’t hesitate to get in touch with one of the team.