Proposed UK Pension Changes for 2024
In November 2023, UK pension changes for 2024 were announced by the country’s Chancellor of the Exchequer via the Autumn Statement, one of two economic forecasts presented each year. These changes include decreasing national insurance contributions for employees and a proposed solution for the country’s significant issue of unclaimed pensions via a ‘pot for life’, which could pose managerial challenges for employers. That being said, for most of the benefits and services Asinta’s UK Partner, Howden Employee Benefits & Wellbeing, manages, the Autumn Statement does not give rise to any significant or immediate obligations or enhancements for employers. However, the devil is in the details on how this government takes forward some of the proposals.
Reduction in Employee NIC Contributions
Matthew Gregson, Executive Director of Howden Employee Benefits & Wellbeing, said, “The government’s reduction of Class 1 employee national insurance contributions (NICs) from 12% to 10% will be welcomed by employees at a time of continued pressure on their personal finances. However, the question is, what will be the long-term implications for the funding and provision of State Benefits?
“Similarly, the rise in the National Living Wage, the mandatory rate of hourly pay increasing from £10.42 to £11.44 from April 2024, will benefit a huge number of lower-paid employees, but this move will impact inflation, pushing up the cost of labor, which will surely be passed on the consumers through the cost of products and services.”
Paul White, Head of Technical, Howden Employee Benefits & Wellbeing, said, “The increases in the minimum wage and living wage will impact employers and increase their costs. There is no direct cost to the government, but perversely, this will lead to an increase in tax income.”
Triple Lock Stays, Pot for Life Proposed
In the UK the ‘triple lock’ is a commitment to increase state pensions by whichever is highest of average earnings growth, CPI inflation, or 2.5%. “The protection of the pension triple lock is also welcome, considering the low replacement rates for pensioners compared to average earnings. It will also support progress towards the Retirement Living Standards proposed by the PLSA,” said Emma Hadley, Head of Pensions at Howden Employee Benefits & Wellbeing,
Hadley adds that the government’s pot for life announcement, while initially promising to address the significant issue of unclaimed pensions—considering the average person accrues around 11 pension pots by retirement, leaving nearly £27B unclaimed in the UK— raises some major concerns over its practical implementation. The proposed model allows savers to direct new employer contributions to their existing pots. However, this could pose major logistical challenges for large employers managing multiple savings accounts. Questions also arise about oversight: Who ensures the pension’s quality, fees, and regular reviews for optimal member benefits? The complexity could outweigh the simplicity envisaged for consumers, potentially posing a managerial nightmare for employers. With the initiative currently in consultation, its future remains uncertain, warranting careful observation.
Removal of the Lifetime Allowance
The maximum amount people can take out of registered pension arrangements without triggering tax charges from April 2024 was also confirmed. While the final details of what this looks like will be published in the Finance Act, indications are that the LTA will be replaced with equivalent levels for tax-free cash calculations.
Benefit Removal for Those Out of Work
The government also increased its funding to get people with health conditions back to work, as well as potentially removing benefits for out-of-work individuals who fail to find work. However, prevention is better than cure, and Howden would like to see the government do more to encourage employers to provide better workplace support for individuals with a health condition or a disability to keep them in work.
This article on the proposed UK pension changes for 2024 is provided by Howden Employee Benefits & Wellbeing, Asinta’s employee benefits consulting Partner in the UK. If you need support with your employee benefits in the UK, please contact Asinta, and we will put you in touch with the local experts at Howden.