Quantum Advisory comment on Autumn budget

Today’s budget has made history, with it not only being the first Budget announcement made by a Labour led government in over 14 years, but also the first ever Budget to be announced by a female Chancellor.

In this year’s Autumn Statement, the Chancellor Rachel Reeves, announced the steps the government propose to take in order to restore economic stability and plug the £22 billion reported black hole in the nation’s finances.

Increase in Employer National Insurance contributions and a decrease in the National Insurance threshold

Employers currently pay National Insurance contributions at a rate of 13.8% on employee earnings above the £175 per week threshold.

It has been announced today that the rate of Employer National Insurance contributions from April 2025 has increased by 1.2%, to 15.0%. Separately the £175 per week threshold under which employers start paying tax has been lowered to £96.15 per week. This is expected to raise in excess of £20bn of revenue for the Government.

In order to mitigate the effect of this on small businesses, the Chancellor did also announce that the employment allowance will rise from £5,000 to £10,500.

Sarah Garnish, a Consultant at Quantum Advisory, said:

“Whilst ‘working people’ pay packets will not be directly affected, this change could indirectly affect employees. For instance:

• Employers reducing future salary increases in order to recuperate the additional costs.
• A decrease in recruitment drives from companies leading to an increase in unemployment.
• A potential decrease in business confidence leading to stifled growth.
• A rework of existing pension contribution structures to recuperate the additional costs. This could either be a reduction in DC pension contributions or more of the NI saving from salary sacrifice schemes going to employers rather than employees.

“However, looking at the change specifically from a salary sacrifice pensions point of view, the increase in the Employer National Insurance rate makes providing a pension provision for employees more attractive for employers where pension contributions are paid via salary sacrifice.”

Inclusion of DC pension pots within Inheritance Tax

From 6 April 2027 unused pension pots and death benefits will be included for inheritance tax purposes. It is thought that this will affect a small percentage of estates each year.

On paper this somewhat restores the principle that pensions should not be a vehicle for the accumulation of capital sums for the purposes of inheritance.

Pensions triple lock retained

The triple lock will be applied in full to the State Pension in April 2025. This means that pensioners will receive an increase in line with the growth in national average earnings of 4.1%, ie an increase to the full State Pension of up to £470 pa.

In comparison this compares to a CPI inflation index growth statistic of 1.7% pa.

Sarah Garnish, a Consultant at Quantum Advisory, said:

“This year’s State Pension increase illustrates the value of the triple lock with the pension increasing by £470 pa whereas it would have only increased by £195 if it had been CPI-linked in isolation. This will come as somewhat of a relief to those pensioners in receipt of a state pension, who are struggling with the current cost of living and the recent cut in the winter fuel allowance.

“There remain larger discussions to be held on the State Pension in the future however as the structure is widely expected to be unsustainable in the long term, particularly with future demographic changes.”

What next for pensions?

The 2024 Autumn budget was prefaced with significant speculation on what may happen in the pensions landscape with some speculation reaching the front pages of the UK tabloids as recently as a week ago.

James Bird, a Consultant at Quantum Advisory, said:

“Discussions in the media around potential employer pension contribution taxation and a decrease in the maximum tax-free cash lump sum available ultimately proved more to be a lesson in how uncertainty in the pensions industry can drive consumer behaviour. For example, there is evidence that some individuals accelerated their tax-free cash lump sum plans and will now need to consider how to invest these tax-free cash lump sums to not make a loss.

“Overall, the pensions industry is in a finely balanced position as it is widely accepted that the majority of current pension systems will not provide a sufficient level of income for members in retirement. This has led to the Government initiating a review into pensions adequacy, balancing this with their desire to use pensions investment to boost growth in the UK economy.

“It was well reported before the budget that the Chancellor is an adept chess player and has learnt how to think several steps ahead through the game. At this stage I expect that the Chancellor has elected to make simpler changes elsewhere to recoup the current reported deficit in the nation’s finances at this stage. The wider stage to consider then how the pensions landscape will need to adapt will play out on the chessboard over the next years.

“With that said, the battle may have got significantly harder now that employer costs have increased further as part of this budget”