Chancellor Jeremy Hunt has delivered his 2023 ‘Autumn Statement for growth’, announcing a few headline-grabbing moves that could affect your money. Our Financial Planners and Portfolio Managers are analysing the changes and what they could mean for you.
If you’re in or near retirement
The triple lock is a government pledge that the State Pension will increase by either average earnings growth, Consumer Prices Inflation (CPI) or 2.5%, whichever is higher.
This year wage growth including bonuses was high at 8.5%, making this an expensive commitment for government coffers.
There had been speculation the Chancellor might decide to peg the triple lock to regular earnings excluding bonuses, as NHS and civil service bonuses have skewed the figures. This would have brought the increase down to 7.8%, but instead he opted to honour it at 8.5%.
This will give State Pension claimants £221.20 per week, up from £203.85 in April 2023. That was a bumper 10.1% increase from the £185.15 per week rate in place last year, explains Dawn Mealing, Business Manager, Financial Planning at atomos. “This amount is £11,440 pa so still below the personal allowance threshold of £12,570 and keeps the State Pension under the trigger for payment of basic rate tax.”
If you’re still working
The Chancellor will cut the main rate of National Insurance for employees from 12% to 10% from 6th January 2024 in what he says is the largest ever cut to personal tax.
Employees pay 12% on earnings between £242 and £967 per week, explains Dawn Mealing. A salary of £967 a week equates to £50,284 a year, so employees earning at this level or above pay £4,524 a year in National Insurance. The cut to 10% will save this group £754 a year. However, employees will still pay 2% on all earnings above £967 a week.
If employees were to put this extra money into their pension, they could see an extra £50,000 in their pension pots over 20 years, assuming annual growth of 5%. “If the employee paid that amount as a salary sacrificed contribution into their workplace scheme they would reduce the NIC even further,” Dawn adds.
Self-employed people could benefit from the scrapping of Class 2 NICs and a cut in Class 4 NICs from 9% to 8%, which the Chancellor said would save them £350 a year from April.
If you’re saving into pensions
The government plans to launch a consultation on ‘pot for life’ reforms which would give workers the right to nominate the pension scheme into which they want their employer to pay contributions.
With the average worker having 11 jobs during their working life, the idea of this change is to reduce proliferation of lost and forgotten small pots and give people more control over their pension savings.
“I can see the benefits of this for those clients who are actively advised, namely, through greater control over the investment solution and also a simplification of the masses of pension pots individuals accumulate in their working lives,” says Idris Shaffiq, Chartered Financial Planner at atomos’s Marlow office. “However, there is a huge advice gap and for those individuals who are not advised, this will likely lead to sub optimal outcomes as workplace schemes are usually low cost and individuals with no advice will struggle to navigate the numerous pension providers out there.”
Helen Howcroft, Head of Women’s Financial Planning, suggests savers who don't benefit from financial advice may struggle to get to grips with the many investment options available if they take a DIY approach to choosing a pension scheme provider.
Elliott Silk, Head of Financial Planning, adds such as change could place a burden on employers and payroll to pay contributions into multiple different pension plans. “It may also raise the cost of pensions, as providers might not be able to offer the low charges that they do on group personal pension plans because the efficiency of being paid contributions from one source will be diminished. It may be easier for people to accumulate through one plan, but we will continue to watch this space.”
If you’re saving into ISAs
The government has announced that, from April, individuals will be able to subscribe to multiple ISAs of the same type every year - provided the maximum ISA allowance isn't breached.
Partial ISA transfers between providers will also be allowed. However, it remains to be seen whether this will be honoured by all ISA providers as it would require significant changes to their systems.
People will be able to invest in Long Term Asset Funds (LTAF) through the Innovative Finance ISA from April. A LTAF fund allows wider access to assets such as infrastructure and private companies which are not regularly traded on stock exchanges.
This change may enhance diversification for savers but the risk of illiquidity (meaning not being able to sell investments quickly) could be an issue so this is only for those prepared to tie up their money for an extended period.
If you’re a business owner
The Chancellor pledged to support business with a range of new measures.
Full expensing on business investment, which allows firms to offset spending on plant and machinery against profits and is due to expire in March 2026, is to be made permanent at a cost of £11bn to the government. For every £1 that a business invests in IT, machinery and equipment, they can claim back 25p in corporation tax.
“This approach goes against the typical Treasury orthodoxy of cutting corporation tax to spur investment intentions in the economy, the gains of which may not in reality lead to higher investment and instead find their way to shareholders,” says atomos Equity Specialist Max Newman.
“This is one potential explanation for the ‘productivity puzzle’ in the UK for the last decade. Full tax deductions on eligible capital spending instead creates a much more powerful incentive for businesses to invest in new equipment. There is some evidence of this working in the US, prompting a corporate ‘arms race’ so that companies do not fall behind their competitors in terms of manufacturing capability and technology. The benefits may well be fairly limited for such a service- based economy like the UK, but this policy would be consistent with trying to rebalance the economy towards manufacturing and supporting exports.”
The government will also extend business rate relief for many small firms, including pubs and other hospitality businesses. However, with the National Living Wage rising to 9.8% from £10.42 to £11.44 per hour from April 2024, and applying to 21- and 22-year olds for the first time, some businesses will now face higher staff costs.
And the changes that weren’t
The rumoured reforms to inheritance tax did not materialise, so there may be more to come here in the spring Budget.
If you’d like to discuss any of these issues with us, feel free to get in touch with your atomos contact or visit https://www.atomos.co.uk/contact-us We’re here to answer your questions.
The information and opinion contained in this article should not be treated as a forecast, research or advice to buy or sell any particular investment or to adopt any investment strategy. Any views expressed are based on information received from a variety of sources which we believe to be reliable, but are not guaranteed as to accuracy or completeness by atomos. Any expressions of opinion are subject to change without notice. Past performance is not a reliable indicator of future results. Investing involves risk and the value of investments, and the income from them, may fall as well as rise and is not guaranteed. Investors may not get back the original amount invested.