The headlines for yesterday’s Autumn Statement were dominated by the cut in the standard rate of employee National Insurance (NI) from 12% to 10%.
Unusually, this will come into force on 6 January 2024 rather than at the start of the tax year. Alongside that, for the self-employed, Class 4 NI will fall from 9% to 8% and compulsory Class 2 contributions will be abolished.
The government confirmed the abolition of the lifetime allowance (LTA) will take effect from 6 April 2024. We await the revised Finance Bill to give us full details of what the new system will look like but it appears that, in place of the LTA, two new lifetime limits will be created.
We run the risk of having a more complex system than previously once these new rules are introduced
A ‘lump sum allowance’ set at £268,275, which will be the maximum someone can take as a tax-free lump sum, unless they have protection, and a ‘lump sum and death benefit allowance’ set at £1,073,100, incorporating both tax-free lump sums someone takes while alive and lump sums paid on death.
Scrapping the LTA was a move intended to encourage more people, especially doctors, to remain working for longer. However, we run the risk of having a more complex system than previously once these new rules are introduced.
Most importantly, the government is pushing ahead with these changes at breakneck speed, giving the industry around four months to change systems and literature, as well as communicate significant changes and their implications to customers and advisers. This is simply not feasible and is likely to result in poor customer outcomes.
The government will consult on giving people the right to have their automatic enrolment contributions paid to a scheme of their choice, rather than the scheme an employer has chosen. Auto-enrolment has been a success in getting more people to save in the defined contribution environment. However, it has created a huge number of small pension pots, which this measure aims to assist.
The cost of the IT required to power this development needs to be considered carefully to make sure it doesn’t outweigh any positive benefits which may arise
To make meaningful positive change to long-term savings habits, we need more people save more into their pension, to understand why they are saving and what for. It is worth exploring whether a pot for life can help achieve those aims.
But we need to make sure any solution doesn’t make life overly difficult for employers. The cost of the IT required to power this development also needs to be considered carefully to make sure it doesn’t outweigh any positive benefits which may arise.
Meanwhile, there are several changes being made to Isa rules. From 6 April 2024, people will be able to hold more than one of a particular Isa in a tax year. For example, a customer could pay into a cash Isa with company A, then a few months later also pay into a cash Isa with company B. This is helpful and will make it easier for people to save.
But we need to go further. Around three in five people invest wholly in cash. While that is a perfectly reasonable starting point for many, over time they are at risk of seeing the purchasing power of their money eroded by inflation.
Allowing cash and investments within the same Isa would allow the potential introduction of ‘nudges’ to help people make the best use of their saving
Allowing cash and investments within the same Isa would allow the potential introduction of ‘nudges’ to help people make the best use of their savings – for example, a gradual move from cash to stocks and shares as people build up a decent cash nest egg.
Isas will also be allowed to hold fractional shares, which is a positive move and may be appealing to younger generations in particular who would like to invest in expensive stocks such as Apple, Tesla and Amazon.
Finally, the government confirmed the state pension will increase by 8.5% in line with the triple lock, despite suggestions it may use a lower figure of 7.8% which was earnings growth excluding bonuses. That means the headline single tier state pension from April 2024 will be £221.20 a week, up from the current £203.85 a week, around £900 a year more.
The maximum basic state pension paid to those who reached state pension age before 6 April 2016 will increase to £169.50 a week from the current £156.20. Although it’s worth remembering other parts of the state pension, such as the graduated pension, protected payments and extra amounts paid due to deferring, will go up by the lower CPI figure of 6.7%.
Despite 110 measures being announced by the chancellor, there were thankfully few surprises for long-term savings. All eyes are now on when we get the updated Finance Bill giving us full details of the new pension tax regime from April 2024.
Andrew Tully is technical services director at Nucleus
“Allowing cash and investments within the same Isa would allow the potential introduction of ‘nudges’ to help people make the best use of their savings”
This is already the case. There hasn’t been any issue with holding cash in a stocks & shares ISA since the 50% limit on how much of your ISA allowance you could put towards cash was abolished in April 2014.
Many stocks & shares ISAs pay interest on client cash, or you can put it in a money market fund. It may not pay as much as a standalone cash ISA (especially after platform charges) but what else would you expect? A product that can hold investments or cash is more expensive to run than a simple deposit account.