After the initial sound and the fury from the politicians and newspapers following the Autumn Statement, more careful analysis is now emerging on the potential long as well as short term impacts. But what will it mean for anyone approaching or in retirement?

Having forecast major announcements around pensions reform in the King’s Speech, the financial press was decidedly piqued to find nothing there of any significance. However, they didn’t have too long to wait as some of the measures originally trailed popped up in the Chancellor’s Autumn Statement – while several that had been predicted failed to emerge – not least dismantling Inheritance Tax.

So what might it mean for you?

State Pension

A handy component of anyone’s retirement funds, the State Pension increase was confirmed at 8.5% from April 2024. On top of this year’s 10% increase that means an extra £155 per month since 2022, taking it up to £11,541.90 pa as from next April. Critically, it means that the “Triple Lock” was honoured in full. While this was originally designed to help sustain those on the lowest incomes, this year’s increase is now baked in for the future for all those heading towards retirement, regardless of their income.

It also makes it even more worthwhile for anyone who will potentially be shy of their full 35 years of NI contributions by the time they retire to top up them up while there is an opportunity to do so.

You can find out more about that here: https://www.gov.uk/voluntary-national-insurance-contributions/deadlines

Lifetime Allowance

The Government, finally, confirmed that legislation for the abolition of the LTA will be introduced over the coming weeks and will be abolished with effect from 6 April 2024. This will help to clarify the taxation of lump sums, lump sum death benefits and non-UK pension plans, as well as the application of protections, transitional arrangements and reporting requirements.

This will be important for any of our users who still may benefit from the existing LTA protections – this is because these protections will allow more of their pension fund to be taken out tax free, as the maximum tax-free cash has now been set at 25% of a fund up to a max of £268,275.

If someone has LTA protection, say of £1.5 million, 25% (£375,000) of that may be taken as tax free cash. So we still need the legislation to confirm that the various legacy protections will be retained despite the abolition of the LTA.

ISAs

New ISA rules from April 2024 will allow investors to invest in multiple ISAs up to the £20,000 overall limit – and this will allow investors to diversify their investment ISA funds across different providers for the first time.  Partial transfers will be allowed in addition to new contributions. This creates an opportunity for investors to review their ISA portfolios which, for some, approach £500,000. Do note, however, that there is NO increase in limits.

Pension “pots for life”

Heralded by the Government as a nifty way to (eventually) solve the problem of pension pots going missing over the course of someone’s working life, which currently are believed to affect one in four people and total some £26.6 billion, the idea has since had some cold water splashed on it by the pensions sector. They see it as difficult to implement at very best… and possibly even unworkable. The Government has issued a call for evidence on this, so don’t expect a major announcement any time soon.

DB schemes and the Pension Protection Fund

If you are the fortunate member of a DB pension scheme, you’ll want to know that several proposals were announced around these. Specifically, the government stated that further consultation will take place this winter, including on:

• how the Pension Protection Fund (PPF) can act as a public sector consolidator for DB pension schemes which are unattractive to commercial providers
• the appropriate regime under which surpluses can be repaid
• the viability of enabling 100% PPF coverage for DB schemes that opt to pay a higher levy

These proposals are intended to increase opportunities for DB schemes to invest in productive finance, while fully protecting member benefits.

Inflation and interest rates

A sharp drop in energy prices has helped to reduce inflation significantly (although beware another 5% hike in energy prices come January!). Inflation remains a big issue – the biggest one as far as the Bank of England is concerned, as it’s their responsibility to keep it at an agreed level.

While the Office of Budget Responsibility has predicted inflation to be at 2.8% pa by end of next year, the Bank of England’s Andrew Bailey has cautioned not to underestimate the continued impact on inflation on consumer finances, suggesting that there will be no quick fix from the BofE by reducing interest rates significantly.

However, with the economy now in danger of becoming more sluggish than was originally expected, the possibility of a 0.25% reduction in the next month or so might just be on. For anyone who has delayed shifting their savings to accounts with higher rates of interest, this might be the last chance to do so at the top of the current curve.

“Mansion House reforms”

Back in July, the Chancellor’s “Mansion House reforms” caused something of a stir in the sector: ostensibly they are intended to provide better outcomes for savers, but they would also serve to encourage pension funds to invest in more diverse portfolios – including British start-ups and infrastructure. Anything that entails a perceived greater risk is always going to be an issue in the sector, but several of the biggest pension funds indicated they would be prepared to push some of their money in this direction.

Consultation is now going on to see how this might work in practice.

How to make sure YOUR pension plans will give you the lifestyle in retirement you want