The Autumn Statement: Impact on Business and Pensions

Following the announcement of the Autumn Statement 2023 from Chancellor Jeremy Hunt, Senior Corporate IFA Consultant, Craig Pritchard, highlights some key points to be aware of from a business perspective, particularly in regards to workplace pension schemes.

The Chancellor announced the National Living Wage (NLW) will increase by nearly 10% to £11.44 per hour.  This follows the increase in April 2023 from £9.50 to £10.42 per hour, an increase of 9.7%.  In addition, eligibility for the NLW will be extended by reducing the age threshold from 23 to 21, resulting in a 21-year receiving a 12.4% increase.

Clearly, this has financial implications for employers in terms of funding the cost of the increase.

Impact on Pensions:  If your scheme uses salary exchange, from April you will need to re-assess the eligibility threshold for employees impacted (or close to) the NLW.  Based on an employee being contracted to work 37.5 hours per week, the annualised income equates to £22,308 and remember you cannot reduce an employee’s salary below the threshold when allowing for a salary exchange pension deduction.

We suggest allowing a buffer above the rate of NLW when setting the eligibility threshold and can discuss this as part of a review of your salary exchange/sacrifice processes.

Employees currently pay 12% employee NIC on income between £12,571 and £50,271 (2% on any income above this level) and effective from 6^th January 2024, this will be reduced to 10%.

A positive change for employees who will receive an increase in take-home pay .

Impact on Pensions: For employees contributing into their pension via salary exchange, the respective employee NIC saving will be reduced slightly (no impact for higher rate taxpayers).  A basic rate taxpayer will however still be saving 10% NIC on their payment which will continued to be welcome during the cost-of-living crisis.

Since the introduction of Automatic Enrolment, the government and pension industry have been concerned that employees are potentially building up multiple small pension pots.   As a result, the Chancellor announced that he would consult on giving pension savers a legal right to require a new employer to pay pension contributions into the employee’s existing pension if they wish.

The government will launch a call for evidence on a lifetime provider model with the aim of simplifying the pensions market, potentially from 2030.

Impact on Pensions: The UK government have seen the success this approach has had in Australia but at this stage, there is a long way to go before the UK system would be able to accommodate.  Without a central clearing house for payments, the additional administration would be very heavy for employers.

In addition, many existing workplace pension schemes benefit from low charges due to the buying power of a group of employees, an existing pension used by an employee may not offer the same value.

→ Click here to download a copy of our Autumn Statement 2023 Guide.

We hope this is a useful summary of the implications of the Autumn Statement on businesses. If you have any questions or would like to speak to an Independent Financial Adviser regarding your own individual or corporate financial planning needs, please do not hesitate to get in touch on 0117 450 1300.