The key takeaways from a highly anticipated Budget
Pensions
On 30th October 2024, the Chancellor delivered one of the most highly anticipated budgets in recent memory: the first budget from a Labour Government in a generation, and the first ever by a female Chancellor. After weeks of gloomy framing, and increasingly frenzied speculation in the press we finally have some clarity.
The Office for Budget Responsibility (OBR) headline provides a pithy summary “Budget delivers large increases in spending, tax, and borrowing”.
The majority of the tax rises will be felt by employers, mainly via an increase in the rate of employer National Insurance Contributions. The Chancellor has avoided making any of the revolutionary pensions changes that had been rumoured, with the exception being the application of Inheritance Tax to lump sum pension death benefits.
Impacts for pensions and employee benefits
Increase in employer National Insurance Contributions (NICs)
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- The majority of the increased taxation that the Chancellor is looking to raise comes from a change to employer NICs from April 2025 – with an increase of 1.2% in the headline rate (from 13.8% to 15%) and a reduction in the threshold when it applies from £9,100 down to £5,000.
- This equates to an increased cost for employers of over £900 per year for the average UK worker, with a higher proportionate increase in costs for lower paid staff.
- While the pre-budget speculation around NICs being applied to employer pension contributions was misplaced, the increase in employer NICs has increased the relative attraction to employers of making pension contributions and of using pension salary sacrifice arrangements. Employers who don’t have a salary sacrifice arrangement in place may look to do so to help mitigate their increased NIC bill.
Inheritance tax applied to pensions
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- Inheritance Tax (IHT) will apply to unused pension funds and pension death benefits from April 2027.
- This change was widely expected and reduces the attraction of using pension assets for IHT planning purposes. The OBR expects that in 2029/30 this will raise £1.5bn allowing for likely behavioural changes, although it would be £2.6bn assuming no changes.
- Trustees and sponsors of pension schemes will want to assess the impact this could have for the death benefits they provide. Individuals with material defined contribution funds may wish to revisit any inheritance planning to consider whether their current approach should be adjusted to reflect the application of IHT.
Increase in minimum wage
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- It was confirmed that there will be a 6.7% in the headline National Living Wage to £12.21 an hour from April 2025. This increase in the headline rate follows on from input from the Low Pay Commission.
- Employers will want to ensure that minimum wage requirements are met, which includes checking that an employee’s pay isn’t reduced below this level by any salary sacrifice arrangements.
Changes to overseas transfers
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- In the budget small print there was an announcement that the government will remove the exclusion from the Overseas Transfer Charge for transfers to pension schemes in the European Economic Area from 30 October 2024.
- While this will require a change in the approach for pension scheme administrators dealing with overseas transfers to Europe, it will bring the treatment into line with the rest of world.
Webinars
Watch the Isio Budget Box Briefing webinar
Isio experts discussed some of the changes affecting employers, trustees and individuals on our Budget day webinar.
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If you’d like to discuss any of the outcomes from the Budget, please get in touch or reach out to your usual Isio contact.
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