PENSIONSANDSAVINGS.COM

• Autumn Budget 2024 – Employers, Pensioners and Pensions all hit.   
• Higher employer National Insurance contributions likely to mean lower pay and pension contributions as employers struggle to meet rising labour costs. 
• Ending Inheritance Tax exemption for unused pension pots will penalise pensioners’ children and see more people taking all the money from their pensions while still relatively young. 
• Triple lock gives much more money to youngest pensioners, while those beyond their early seventies will see much lower State Pension rise, on top of losing Winter Fuel payments this year. 

Massive rise in employer national insurance costs likely to mean lower pension contributions and future pay rises: The biggest revenue raising measure in the Autumn Budget by far, is the massive rise in Employer National Insurance contributions.  Raising the rate to 15% and also cutting the starting threshold to £5000 is a significant increase in labour costs. Coupled with the much higher minimum wage, employers will be looking for ways to reduce overall labour costs. Obviously, this risks lower pension contributions and future wage rises. (Interesting to see, in the costings tables, that public sector employers will be reimbursed, costing taxpayers nearly £5bn a year.

Ending inheritance tax exemption for unused pots will reduce older pensioners’ funds leaving more poorer elderly pensioners in future: Pensioners who pass away without having spent all the money in their pension funds will no longer be able to pass the unused funds to their children without being taxed at 40%. This will mean pensioners will be encouraged to spend their pension while still relatively young, leaving much less to live on if they survive to older age. Most people underestimate their life expectancy, so they are likely to have spent their pension well before they reach their much later years, therefore potentially having less to live on than they otherwise would and less money to spend on elderly care.

Ending pensions being inherited free of inheritance tax undoes many people’s estate planning and will penalise younger generations: This change will undermine the pension prospects for younger generations. All Defined Contribution pension funds can currently be used as a pension fund for the next generation, and those who die relatively early have been able to pass on their funds as a pension for their offspring. Taking away that ability in 2027 is a really bad decision in my view. The pension fund does not escape tax altogether (unless someone dies before age 75 and that exemption should have been closed). Those who inherit a pension fund still have to pay tax on the money at their marginal rate when they withdraw it.  Therefore, tax is still paid, but it can form the basis of better pensions for younger generations who tend to be less well-pensioned than older people.

Other ways in which older people lose out from this budget: Older people tend to rely more than others on investments and savings they have set aside for their future, including income from dividends, or a second property. They will also be hit by the increases in capital gains tax.

Triple lock rises sound great, but are much less generous for older pensioners: The State Pension triple lock only applies to the full new State Pension. Any pensioner beyond their early-seventies is on the old state pension system and only their Basic State Pension is covered by the triple lock. Much of their State Pension comes from the Additional Pensions like SERPS or S2P and these parts only rise by cpi next year, so they are losing out relative to the younger ones.

The Higher State Pension will also drag more pensioners into the tax net as thresholds stay frozen: The full new State Pension is rising to £11,962.60 from April 2025, from this year’s £11,500. This means many pensioners with no more than their State Pension will be tipped over the personal tax threshold for the first time and placed at risk of not knowing they are liable for tax, or not paying it on time and being penalised. Many of them should hear directly from HMRC about paying income tax, and have a Simple Assessment Form, but some older pensioners who do not realise any tax alerts apply to them, may inadvertently not pay tax, as they have never paid it before. I hope the Government will look carefully at arrangements for pensioners in this position so they are not penalised unfairly.