What the 2024 Spring Budget means for pension planners

Set against the backdrop of an impending election, today’s Spring Budget served as the government’s final opportunity to woo voters with a raft of policies and reforms.  

The Chancellor’s lengthy address contained few surprises, with many of the key announcements known ahead of time. Nevertheless, with the UK economy having fallen into recession and two years of price rises leaving millions of households across the UK worried about their financial future, the 2024 Budget was of great importance.

So, as the dust settles, we examine the key policies affecting pension planners.

The pot for life

The Budget saw the Government reaffirm its commitment to the ‘pot for life’ initiative. The pot for life will allow workers to choose their private pension and carry it throughout their working career instead of accruing multiple pots by taking on a new one each time they change employer (this has become known as the ‘small pots’ issue).

Chancellor Jeremy Hunt announced the pot for life scheme in the Autumn Statement and it was consulted on until January.

The small pots issue has plagued the UK for some time – it’s estimated that £37 billion is sat in lost pension pots. So, fast-tracking the pot for life initiative is a step in the right direction. However, it’s important to recognise that the policy still doesn’t address the longstanding issue of pension engagement.

Our Policy Director Lily Megsonexplains: “The government must go further to ensure pensions are not a case of “out of sight, out of mind” – employees must have access to the support they need to understand how many pensions they have, where they are, how much is in them, and how they are performing. Only then can they make informed decisions about their financial future.

“We urge the government to go much further; bring forward the pension dashboard, help consumers track down lost pensions, and put mechanisms in place to empower people to better plan for their financial futures.”

Pension fund reform

Last year the Chancellor introduced the Mansion House reforms. This plan aimed to unlock pension funds to increase growth for UK business investment. This policy was raised again in the Spring Budget, but also expanded to include a broader review of how direct contribution (DC) pension schemes are performing.

On the clarifications provided today, Lily notes: “The Chancellor’s aim to unlock pension funds for UK business investment and economic growth is understandable. However, it was crucial that he offered greater reassurances to consumers that the over-arching goal in these reforms was to improve outcomes for savers.

“Today’s confirmation that there will be a renewed focus on assessing the performance of DC pensions is a positive news and is to be welcomed. Continuous evaluation of pensions is vital, with under-performing schemes rightly to be placed under the microscope. This is rightly in the interests of UK pension planners.”

National insurance cuts

Perhaps the headline announcement of the Chancellor’s Budget was a 2p cut in National Insurance aimed at providing a savings boost for around 27 million employees.

Unfortunately, pensioners will miss out on this savings boost. Lily comments on how cutting income tax would have been the more logical route:

“The savings people will enjoy in today’s NI cut are modest – the average UK salary is around £28,000, and someone earning that much stands to save less than £350 a year by cutting NI rates by 2p. And we mustn’t forget that the impact of the NI cuts are limited to those in work. Pensioners still fall through the cracks. 

“Cutting income tax would have cast a much wider net and ensured that pensioners (who pay income on their pensions in retirement) also benefitted from a savings boost. Once again, we must ask ourselves, why has the Government taken a limited approach in a move that sacrifices the potential to help millions more people achieve a financially secure retirement? Given the party is lagging behind in the polls and Hunt needs policies that appeal to as many voters as possible, choosing NI cuts over income tax cuts seems a misstep.”