In this week's UK 2024 Autumn Budget, Chancellor Rachel Reeves announced several key updates impacting the pensions industry. Here is a brief summary of the highlights, including changes to State Pensions, inheritance tax adjustments, and other important developments.
1. State Pension and Minimum Wage Increases
From April 2025, the Basic and New State Pensions will increase by 4.1% under the Triple Lock formula, with the New State Pension rising from £221.20 to £230.25 per week. Additionally, the National Living Wage will go up to £12.21 per hour. As a result, minimum wage earners may now be eligible for auto-enrolment with fewer hours worked each week.
2. Inheritance Tax Changes on Pensions
Starting April 2027, death benefits from pension schemes will fall within the scope of inheritance tax (IHT), adding a layer of complexity for beneficiaries. Pension Scheme Administrators (PSAs) will be responsible for calculating and paying the IHT liability to HMRC, based on the value of pension benefits provided to legal representatives. This means that beneficiaries may face reduced amounts after tax, making pensions a less tax-efficient option for wealth transfer. As a result, there may be a renewed interest in life insurance policies as an alternative for passing wealth to future generations.
3. National Insurance Rise for Employers
Employer National Insurance (NI) contributions will increase from 13.8% to 15.0% starting in April 2025. However, pension contributions remain NI-exempt, making pensions an even more attractive employee benefit. The savings from salary sacrifice schemes will also increase, further incentivising employer contributions.
4. Overseas Transfers and Scheme Administration
Changes are coming for overseas pension schemes. From October 2024, transfers to European Economic Area (EEA) or Gibraltar schemes will face a 25% tax charge unless the individual is a resident in the QROPS country. Additional changes take effect in 2025 and 2026, impacting EEA schemes and administrator residency requirements.
5. Lifetime and Annual Allowances Remain Unchanged
The Lifetime Allowance (LTA) will remain abolished, and the standard annual allowance will hold at £60,000. Speculation around the reduction of tax-free lump sums and marginal rate tax relief on pension contributions did not materialise, allowing for continued tax benefits on pension contributions.
We hope this summary offers valuable insights for your pension administration needs. If you have any questions or would like to understand how our solutions can support you in navigating these changes, please don’t hesitate to reach out. Our team at Life & Pension Systems is here to help you stay compliant and prepared.
Contact Us:
📧 Email: info@lpsystems.com
📞 Phone: +44 (0)151 255 1553
🌐 Website: www.lpsystems.com
Comments