How the UK Autumn 2024 Budget Impacts Employee Benefits

In the UK, the government plays a direct role in shaping employee benefits through its budget decisions. This is partly because the UK has a national healthcare system (NHS) and a state pension system that forms a significant part of retirement income for many workers.

Chancellor Rachel Reeves delivered the UK’s Autumn Budget 2024 on October 30, 2024. This was the first budget of the new Labour government following their election victory earlier that year.

According to Asinta’s UK Partner, Howden Employee Benefits & Wellbeing, few announcements in the budget directly impacted employee benefits. However, here is a roundup of some key changes and how they might impact your business.

Pensions and Risk

Details of an announcement that will potentially impact death benefits are currently being reviewed. In practice Howden believes the impact is limited to death benefits funded from accrued pension funds, as opposed to benefits from Group Life Assurance Schemes, being included for Inheritance Tax (IHT) purposes.

Further clarification is anticipated, and Howden will keep the Asinta Partners informed of any relevant changes.

Health

There were no direct announcements in the budget affecting health benefits. While some had anticipated an increase in Insurance Premium Tax (IPT), no changes were made.

Employer NICs

From April 2025, Employers’ National Insurance Contributions (NICs) will increase from 13.8% to 15%. NICs are taxes employers in the UK must pay on top of their employees’ wages.

Points of View

Salary Sacrifice

While employers face higher Employer NICs and increased tax bills, these can be addressed by implementing Salary Sacrifice. By implementing Salary Sacrifice, employers can save 15% on Employer NICs on employees’ pension contributions, helping offset some additional costs while making a positive contribution to their employees’ retirement outcomes.

With upcoming changes to auto-enrolment contribution thresholds and the removal of the lower limit, now is the perfect time to review both pension contributions and broader remuneration strategies.

If you require further information on the benefits of Salary Sacrifice, you can request Howden’s report on the subject.

Communicating Changes with Employees

When changes are made, like the implementation of Salary Sacrifice and death benefits funded from accrued pension funds being included for IHT purposes, effective communication is crucial to help them understand the implications. Clear communication can enhance employee trust and engagement, particularly in periods of change.

Further Detail

Pensions: Key Points from the Budget

Significant changes to pension taxation were anticipated, but in practice, the only announcement was regarding death benefits funded from accrued pension funds being included for IHT purposes. Key points include:

• No changes to the amount members can take tax-free, capped at 25% or £268,275.
• The Annual Allowance remains at 100% of salary, up to £60,000.
• Tapered Annual Allowance rules continue for employees with Adjusted Earnings above £260,000.
• No reintroduction of the Lifetime Allowance cap.

Tax relief for employees remains at its marginal rate, with no removal of NI relief for employer or employee contributions made via salary exchange.

The State Pension will continue under the triple lock, with a 4.1% increase in April 2025, raising the full state pension from £11,502 to £11,973 annually.

Tax on Pension Death Benefits

Historically, pension schemes have enabled wealth transfer without IHT liability, though this was not the intended purpose of retirement funding. The Chancellor has now announced a consultation on bringing unused pensions and death benefits into the IHT scope from April 2027. This review will explore:

• The incentive to use pensions as a tax-planning vehicle.
• How discretionary vs. non-discretionary death benefits are taxed.

Currently, pension benefits paid at the trustees’ discretion are not included in the deceased’s estate. From 2027, these may be subject to IHT if the estate exceeds the threshold. The IHT exemption for spouses and the £325,000 nil rate band (alongside the £175,000 residential nil rate band) will remain frozen until April 2030.

The consultation period runs from October 30, 2024, to January 22, 2025.

 

Howden will provide updates to this information regarding the UK Autumn 2024 Budget as it becomes available. If you need support with your UK employee benefits strategies, please contact Asinta, and we will put you in touch with Howden Employee Benefits & Wellbeing.