Chancellor Jeremy Hunt’s Autumn Statement 2023 revealed ambitious pension plans, building on radical pension changes announced in the Spring Budget 2023.
Here are the Autumn Statement 2023 key points at a glance:
‘triple lock’ on the State Pension maintained for 2024, meaning full State Pension of £11,502.40 in 2024;
one pension pot for life on the way;
National Insurance payments cut for self-employed;
National Insurance contributions for employed were reduced from 12% to 10%;
plans to tax inherited pensions scrapped; and
increase in living wage to £11.44 from April 2024, boosting financial security for many.
Triple lock on State Pension maintained for 2024
The full State Pension will rise by around £900 to £11,502.40 in the 2024/25 tax year (£221.20 a week). For tax year 2023/24 it’s currently £10,600 a year or £203.85 a week.
The 8.5% increase means the government has stuck to its triple lock promise, which is to ensure that the State Pension rises in line with the largest of these three figures:
According to the Office for National Statistics (ONS), figures show that the annual growth in employees’ average total pay (earnings) was 8.5% in May to July 2023, which has determined the triple lock rate.
There had been concerns the government would look to reduce the State Pension increase, as official figures showed inflation slowed to 4.6% in October 2023. But with a General Election expected in 2024, it would have been a brave move to tinker with the triple lock and may have risked alienating retired voters.
One pension pot for life
The government hopes to introduce one pension ‘pot for life’ to solve the problem of workers having numerous workplace pensions throughout their career. The idea is that when employees switch jobs, they’ll be able to choose where their pension contributions are paid – rather than being bound by their new employer’s chosen pension scheme. It means pension providers will have a greater incentive to compete for customers, which could benefit savers by reducing fees and offering wider investment choice. PensionBee research suggests 76% of people would consider having their own ‘pot for life’ pension, so the move would likely be popular.
The government’s now launching a consultation on how the lifetime provider model could work, so don’t expect changes to happen any time soon. But for people engaged with their pensions and savings, this plan to simplify the pensions market is good news. It will also reduce the chances of forgetting about a pension. It’s estimated there’s around £27 billion sitting around in pensions that people have lost track of.
The news is particularly welcome due to lack of progress in the government’s Pensions Dashboards, which would allow people to access information about different pensions in one place. The dashboard was first mentioned in 2019 but has since seen a string of delays and may not be available until late 2026.
Reduced National Insurance bills
Cuts to National Insurance aennounced in the Autumn Statemnt will benefit many employees and self-employed workers. National Insurance isn’t the easiest tax to understand, particularly for freelancers and the self-employed who currently have to pay two separate National Insurance charges in order to access the State Pension and other benefits.
The three key changes are summarised below.
- Class 2 National Insurance abolished.
A flat-rate compulsory charge of £3.45 a week is currently paid by self-employed people earning more than £12,570 through Class 2 National Insurance. This will be abolished from April 2024, saving self-employed people £179.40 a year.
- Class 4 National Insurance rate reduced.
Class 4 National Insurance contributions on earnings between £12,570 and £50,270 will be cut from 9% to 8% from April 2024. This will mean savings of up to £377 a year for self-employed people.
- Class 1 employee National Insurance cut.
Employees will benefit from a drop in their National Insurance rate from 12% to 10% on earnings between £12,570 and £50,270 from January 2024. This means someone on average earnings of £35,000 will save £449 a year, while those earning £50,270 and above will save £754.
“These measures offer a meaningful boost to take-home pay. This could enable workers to save more of their money for the future,” says Becky O’Connor, Director (VP) Public Affairs at PensionBee.
Plans to tax inherited pensions scrapped
The government had planned to tax inherited pensions when someone dies under the age of 75. It was today announced that the government will no longer make this change from April 2024 and that such pensions will remain tax-free. This is particularly good news for people whose estate is liable for inheritance tax, as it provides the option to pass on savings tax-free through a pension.
Minimum wage increase
The minimum wage rate (known officially as the National Living Wage) will see a rise of almost 10% from the current £10.42 to £11.44 from April 2024. The new rate will be a welcome addition to the pay packets of workers across the UK. In addition to increasing take-home pay, it’ll also mean more money going into your pension through Auto-Enrolment – increasing long-term financial security.
The 2023 Autumn Statement means workers’ take-home pay will increase next year, along with pensioners who will benefit from an increase in the State Pension.
Elizabeth Anderson is a Personal Finance Journalist and Editor (Times Money, Metro and i paper).
As always with investments, your capital is at risk. The value of your investment can go down as well as up, and you may get back less than you invest. This information should not be regarded as financial advice.