The Autumn Budget: view from a Pensions Law specialist
Good news - the Chancellor has kept to her word, with no change to the April 2024 pension tax reforms – the two new allowances LSA and LSBDA are still in place, there is no return to the Lifetime Allowance, no change to the higher Annual Allowance of £60k and no change to the tax relief system or the taxation of the lump sum benefit withdrawal.
The government will maintain the State Pension Triple Lock for this Parliament. The basic and new State Pension will increase by 4.1% from April 2025, in line with earnings growth. The Pension Credit Standard Minimum Guarantee will also increase by 4.1% from April 2025.
It will be interesting to see whether the Government’s position on the Mineworkers Pension Scheme where surplus is to be used as additional pension for members of the scheme will impact more generally on the Government’s broader review of how surplus should be shared in respect of other schemes.
Buried in HC295, the 165-page supporting document, is a short statement that the UK’s net financial debt includes an additional £507 billion worth of funded public sector pensions liabilities. This is a mind-boggling amount for UK taxpayers to fund.
To encourage savers, the starting rate for savings will be kept at £5,000 for that tax year 2025-26. This allows individuals with less than £17,570 in employment or pensions income to receive up to £5,000 of savings income tax free.
The government is to continue its work in partnership with the private sector to further increase investment, in part through its pensions review to unlock greater investment in UK growth assets.
There is, however, a change back to the position before 2015 as regards the use of defined contribution pension plans as tax-efficient saving vehicles for IHT purposes for the wealthiest members of society i.e. those who have not used their defined contribution pension savings up during their lifetime. This change is to come into effect from 6 April 2027. In monetary terms, this is forecast to amount to £640m +£1,340m +£1,460m for the tax years 2027/28,2028/29, and 2029/30 respectively for unused pension funds and death benefits payable from a pension and is likely to affect around 8% of estates each year. Some people might interpret this as a green light to use their pension savings up while alive and/or give them away thus becoming a burden on the state in their later years. The detail will be important here, and we wonder whether there might be a de minimis for this.
The Government is making an immediate change from budget day today (30 October 2024) to take away a little-known pension tax loophole that applies in respect of QROPS, ie Qualifying Recognised Overseas Pension Schemes, in the European Economic Area (EEA) or Gibraltar so that individuals cannot obtain double tax-free allowances for transfers to them. This issue arose due to how the Overseas Transfer Charge applies in respect of such transfers. This is forecast to earn the Government £5m for each of the next 5 tax years.
The Government will require scheme administrators of HM Revenue & Customs registered pension schemes to be UK residents from 6 April 2026. This will not result in any change for the vast majority of UK HMRC-registered pension schemes.
Additionally, from 6 April 2025, to reflect the current position on the free movement of workers and their ability to transfer their pension savings with them as they move from state to state, the government will update the conditions as to what amounts to Overseas Pension Schemes (OPS) and Recognised Overseas Pension Schemes (ROPS) established in the EEA, compared to those established in the rest of the world.
