The Chancellor of the Exchequer, Jeremy Hunt’s 6 March 2024 budget proved to be a modest giveaway overall, but there were several pensions specific measures in his speech laid out to parliament of which we explore below:
National Insurance
Following the National Insurance (NI) cuts in January, a further NI cut was announced. This will see the rate of Class 1 Employee NI decreasing from 10% to 8%, while the self-employed will see a reduction from 9% to 6%, taking effect from 6 April 2024.
On the face of it, this will mean that an individual on a median average ‘full-time’ wage of around £35,000, will be about £450 better off a year. However, since the 2021/22 fiscal year, a number of tax allowances, such as the Personal Tax Allowance of £12,570, and the point at which earners tip into higher-rate tax territory (£50,270), have been frozen – and are expected to remain so until 2028.
Ultimately, this will mean that many lower and higher earners are likely to be worse off in the long run, as any wage increase will see individuals currently under the Personal Allowance start to pay tax. Likewise, many basic-rate taxpayers will tip into the 40% tax bracket.
High Income Child Benefit Charge
The lower threshold for High-Income Child Benefit is to rise to £60,000 (from £50,000 in 2023/24), while the upper threshold will also be raised to £80,000 (from £60,000 in 2023/24), effective from April 2024. The Chancellor also noted that he would be looking to consult on a move to a “household income” based system from April 2026, with the delay largely due to the complexities of putting such a system in place.
The plan to move to a household-based income system in future is a welcome improvement upon the current system, which is unfair to many families will be greatly improved upon. The immediate changes to the Child Benefit thresholds will mean many individuals may now be able to start receiving child benefit.
Similarly, the plan should also be of particular interest to higher earners whose employers operates pension salary sacrifice, who may find it beneficial to reduce their earnings by increasing their pension contributions, thereby enabling them to claim some or all of their child benefit.
British ISA
The Government also announced the introduction of a new British ISA, designed to support UK businesses by being solely invest in UK listed companies. Individuals will be entitled to a separate ISA allowance of £5,000 (on top of the existing £20,000 allowance). The launch date yet to be confirmed.
It remains to be seen whether this will become a feature of Corporate ISAs, allowing employees to invested in the planned new British ISA through payroll deduction.
Value for money in DC Funds
As part of the Government’s plan to consolidate the pensions market, with a focus on improving outcomes for defined contribution (DC) pension savers, there was also an announcement that pension funds will be required to publicly disclose how much they invest in UK businesses compared to those oversees. Schemes that are performing poorly will not be allowed to take on new business from employers.
In the Spring, the Financial Conduct Authority (FCA) will start their consultation on the details of the new Value for Money (VFM) framework for DC workplace pension schemes, with proposals for contract-based schemes needing to publicly disclose the asset allocation and historical net investment returns for their default investment options. Additionally, schemes will have to compare their performance to other schemes, at least two of which will need to have assets in excess of £10 billion, with this level expected to increase over time.
These proposals sound positive and will no doubt lead to better outcomes for members. However, savers and their employers must await the consultation from the FCA on this matter and details on how the Government plan to make these proposals work.
Other pension updates
The ‘triple lock’ arrangements for increases to basic and new State Pensions in payment is maintained, with the new full State Pension therefore rising by 8.5% from £203.85 to £221.20 per week, with effect from 6 April 2024.
The Government have also confirmed they remain committed to exploring a lifetime provider model for DC pension scheme in the long-term, again with a view on improving outcomes for pension savers.
Following the 2023 Autumn budget, the pensions industry was asked to provide their views on the introduction of such a model. Publication of the full consultation response is expected in due course.
Health
While it was disappointing that no tax breaks towards company-funded healthcare plans were announced during the 2024 Spring Budget, it was pleasing to see an increase in spend allocated towards the NHS, with the Government’s promise of an additional £2.5 billion of day-to-day revenue funding for the NHS in England in 2024/25 over what was planned last year.
The actual impact of this is ambiguous, but the focus on digital solutions and technological advances is likely to reduce administrative issues, shorten waiting list times, and increase the number of procedures undergone, albeit it will take some time for the results of these to be felt.
This will hopefully relieve some of the stress that the UK healthcare system has been under since (and starting before) the pandemic. An improvement to NHS processes may also have a positive impact, with more core care being funnelled back through the NHS, allowing employer-sponsored PMI plans to focus once again on additional benefits and enhanced pathways.
Lockton will be monitoring this situation closely and will provide updates as pertinent.
For more information, please visit our People Solutions (opens a new window) page, or contact:
Mark Hathaway, Pensions & Workplace Savings Team Leader
E: mark.hathaway@lockton.com (opens a new window)
Claire Knowles, Health Lead
