3. Cuts to rates of National Insurance
Standard rate of National Insurance to be cut from 12% to 10%
The Government has announced some significant changes to certain National Insurance (NI) rates. The standard rate of Class 1 NI on income between £12,570 and £50,270 has been reduced from 12% to 10%. On the average UK salary of £35,000, this will equal a saving of over £450 a year back into your pay packet.
While a change such as this would typically take place in April at the beginning of a new tax year, the Chancellor has announced the intention of pushing through urgent legislation to bring this into force from 6 January instead.
Class 2 NI abolishment and Class 4 NI reductions for the self-employed
The Autumn Statement has also brought changes to NI for the self-employed. Class 4 NI will be reduced from 9% to 8% on profits between £12,570 and £50,270 for self-employed workers. Class 2 NI – a flat-rate compulsory charge of £3.45 a week for self-employed people – will be abolished completely. The Government anticipates that together, these two changes will save over 2 million self-employed people an average of £350 a year. These changes will come into effect from 1 April 2024.
No impact to those over 66
It’s worth noting that as those at State Pension age (currently 66 but rising to 67 by 2028), won’t see benefit from a reduction in NI rates, as they’re already exempt from paying this.
4. Changes to ISA rules for savers
Several updates have been announced on the rules for Individual Saving Accounts (ISAs). Currently, you can only pay into one type of each ISA in a single tax year. But from April 2024, savers will be able to pay into multiple ISAs of the same type each year, removing a layer of complexity to the ISA process. The standard annual limit you can pay into all your ISAs in a single tax year without receiving a tax charge will remain at £20,000.
Other changes to ISAs coming into effect in April 2024 include:
- Allowing a partial transfer of ISA funds between providers
- Removing the requirement to reapply for an existing dormant ISA
- Aligning the account opening age for any adult ISA to 18
For the full list of ISA changes, see page 90 of the Government’s Autumn Statement document.
5. Consultation on small and deferred pension pots with a ‘pension pot for life’
The Chancellor has announced a consultation on pension reforms in a bid to reduce the amount of small and deferred pension pots.
Currently, when you start a new job and if you’re eligible, you’ll be automatically enrolled into your employer’s pension scheme. This means if you’ve changed jobs multiple times in your career, you might have several small pension pots across different providers – which run the risk of becoming ‘lost’ if you don’t keep track of them.
The reforms will look to reduce the number of pension pots you have by giving you a legal right to tell your employer to pay pension contributions into an existing pension pot of your choosing. A ‘pot for life’.
While this is likely a positive step to reduce the chances of you losing track of your retirement savings, we believe there could be some potential risks, too. A ‘pot for life’ could be damaging to the role that employers play in pension saving. Workplace pensions can be used as a way to attract and retain employees, and many employers pay enhanced pension contributions to support this. The ‘pot for life’ concept could lead to lower employer contributions and support in the workplace.
Experts have also raised concerns that a ‘pot for life’ could mean people choosing a pension plan that doesn’t give them good value, leaving them worse off.
The consultation will likely take place over the coming months.